Australia has fallen into a per-capita recession for the first time in 13 years, as a slowing economy buffets the government’s strong economic message just three months out from the federal election.
Scott Morrison has increasingly staked the Coalition’s election chances on the economy, warning repeatedly “the economy will be weaker under Labor”. This week the prime minister again sounded the alarm that voters could see a return to 1991 recession conditions under a Shorten government.
Morrison honed his message in a speech to the Australian Financial Review Business Summit on Tuesday, shaping the election as a contest between “enterprise and envy”.
But Australian Bureau of Statistics data released on Wednesday show the economy grew by 2.3% over the year, and just 0.2% for the December quarter, short of the Reserve Bank forecast of 0.6% and market expectations.
However it was the “GDP per capita” measure that caught the eye of the market and economists. Population grew 0.4% in the quarter, meaning per capita economic growth has fallen into negative territory for two consecutive quarters, -0.1% in September and -0.2% in December, for the first time since 2006.
The technical definition of a recession is negative growth in two consecutive quarters. While the labour market has continued to grow, spending has not, with a weakening east coast housing market another indicator of a tightening economy.
The ABS data shows population growth helped sustain the economy, presenting a further problem for the government which has indicated it would like to reduce the migration intake cap, although Morrison has warned that cannot be done at the expense of the economy.
In response to the figures, the Australian dollar fell to a two-month low, from US70.88c to US70.34c.
Economists at the investment bank JP Morgan predicted the Reserve Bank would be forced to cut interest rates twice this year in order to stimulate the slowing economy, starting with a reduction as early as July.
The falling currency and the prospect of cheaper borrowing was a boon for the ASX200, however, with the index rising 46.3 points, or 0.75%, to 6,245.6 points.
The treasurer, Josh Frydenberg, focused on the good news while delivering the results, complete with a slide show.
“Australia continues to grow faster than any G7 nation except the United States,” he said.
“Over the past 12 months, more than 270,000 new jobs were created and more than eight out of every 10 of these jobs were full-time.
Frydenberg said the proportion of the working-age population in employment was at a record high, and pointed to a 2.4% increase in non-mining investment over the quarter.
“There is also continuing evidence that private business investment is benefiting from increased public infrastructure investments as firms invest in machinery and equipment to deliver these projects.”
But the government is struggling to balance the new figures with its warnings of what a future Labor government could do to the economy.
“If the Labor party have their chance to implement $200bn of taxes, that is nearly the size of the New Zealand economy … and that is what they are going to lay over the Australian economy,” Frydenberg said.
“The Labor party used to believe in a tax to GDP ratio, they used to believe in a cap to the amount of tax you could spend. But now they no longer believe in that.”
The shadow treasurer, Chris Bowen, said while Morrison “was warning in his normal political fashion, scaring [people] about the prospect of a recession under a Labor government, the simple fact is there is a per-capita recession on today”.
“This is a damning indictment of the economic stewardship of Scott Morrison and Josh Frydenberg.
“Wages are not growing fast enough … we have now had eight quarters of negative productivity growth.”
Labor has not committed to saying when it would implement its grandfathered negative gearing policy, given the slowing housing market and falling house prices across east-coast cities.
But in his own speech to the AFR Business Summit, Bill Shorten said Labor’s plan for the economy was more than just one policy. It was time to look at setting a living wage, he said, not a minimum wage.