The economic ghouls may be disappointed that this week’s real GDP read-out for the quarter came without a minus sign. There is no hint of recession. The ‘fiscal stimulus for dummies’ book can go back on the shelf. But one doesn’t need to be a ghoul to find plenty to worry about in the national accounts details.
Although real GDP is still growing, it is not growing enough to match population growth — so real GDP per capita declined slightly in the year to the June quarter. That is another way of saying real living standards are stagnant — which is perhaps not surprising when productivity is flat or falling.
With private sector demand sluggish, the biggest boost to GDP came from consumption expenditure by the general government sector — and within that aggregate, the federal government was the biggest contributor. (Was that an unannounced fiscal stimulus?)
What really saved the day — and produced the first quarterly balance of payments current account surplus in 44 years — was a surge in export volumes and prices, and a slump in import volumes. The surge in export prices was in effect a pay rise for the nation — manifest in the terms of trade — which pushed real net national disposable income to a boom-time growth rate of 4.4% in the 12 months.
We cannot go on hoping for more surges in commodity exports and their prices, and certainly not for another burst of growth in government consumption of what the private sector produces.
What the national accounts tell us is what we already knew — that there is no case for a short-term (temporary) fiscal stimulus, but an overwhelming case for structural (permanent) policy measures to strengthen the incentive and enabling framework for business investment and the productivity growth that comes with it. Some of these measures will be fiscal — such as a more investment-friendly business tax system — but the list also includes such policies as industrial relations, energy, infrastructure and skills.
This is a job for state and territory governments as well as the federal government. The federal government may have to sacrifice its budget surplus to get the job done, but that would probably be justified if kept to reasonable proportions.
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