The latest figures from the Australian Bureau of Statistics, have revealed that our GDP growth declined 0.3% in the March Quarter. This is the first fall since Cyclone Yasi and the Queensland Floods stagnated the economy in March 2011. In addition to this, GDP per capita has also decreased in the past year, something we have not witnessed since the 2008-09 GFC. With the government predicting that the June Quarter will be considerably worse, Australia will inevitably suffer a technical recession (two consecutive quarters of negative growth).
Our failing economic fundamentals can be largely attributed to the widespread bushfires earlier this year and the COVID-19 pandemic, two crises that facilitated massive reductions to our national household consumption levels. Household consumption has fallen a significant 1.1% in the March Quarter, the largest drop since 1986. It is important to note that households make up roughly 56% of our entire economy. Thus when household consumption suffers, it is likely that our Aggregate Demand (AD = C + I + G + (X - M) and therefore economic growth are at significant risk. Even prior to the corona-virus, spending growth was at a historic low; quite shockingly it has now been 8 years since consumption levels have been above the long term average. Despite our recessive state, Australia’s economic fundamentals compare fairly well relative to global economic standards, with negative growth of 9.8% in China, 5.3% in France, 2.2% in Germany, 2% in the UK and 1.3% in the United States. This is largely due to government expenditure adding 0.3% to GDP growth and (counter-intuitively) imports a substantial 1.3%. While imports actually reduce GDP as money is flowing out of the economy, in the March quarter imports FELL by a greater amount than exports, meaning it raised growth levels.
While government spending has assisted to somewhat stabilise the economy, in order to bounce back from what has been considered “the worst three month period since the 1930s”, there needs to be Aggregate-Supply based growth too. This stipulates a greater level of investment and microeconomic reform.
Cost of capital equipment:
Exports and Imports
Improvements in efficiency and technology
High AS is acquired through:
Three types of efficiencies to be gained from higher AS: