News ID: 261781
Published: 1001 GMT November 19, 2019

Australia now has a one-speed economy — and that speed is slow

Australia now has a one-speed economy — and that speed is slow

The gross state product figures for the 2018-19 financial year reveal that Tasmania, the Australian Capital Territory (ACT) and Victoria were the strongest-performing states and territories, but that the weakness in the national economy is widespread and so too is the stagnation of household living standards.

While we get the Australian GDP figures every three months, we only get the gross state product figures once a year. The quarterly GDP figures only provide us with what is known as state final demand, the Guardian reported.

Essentially, that is all the production and consumption that occurs within the state, but does not count trade — either international or interstate.

As you can imagine, for a state like Western Australia trade makes a big difference. In 2018-19 for example, WA’s state final demand fell 1.2 percent but its overall economy grew one percent.

But in 2018-19 the big economic performer was Tasmania. Its economy grew 3.6 percent — well above the next best performing state, Victoria, and just under double the 1.9 percent growth of the Australian economy.

Even when taking into account population growth, Tasmania remains the best-performing state or territory, with the ACT and Victoria in second place.

The figures, however, show the overall slowing of the national economy. Every state and territory saw its economy grow slower on a per capita basis in 2018-19 than it did the previous year:

But when we look at the overall contribution to the growth of the national economy, we really see where the strength lies.

Victoria’s economy accounts for 23 percent of Australia GDP, and yet it contributed 37 percent of the growth in the nation’s economy — vastly ahead of any other state, including the much larger NSW economy.

In a sense Victoria made up for the poor performance of Queensland, Western Australia and South Australia — all of which underperformed.

But pound for pound, Tasmania was again the strongest performer — its economy is just 1.6 percent of GDP and yet it contributed 3.2 percent of the GDP growth — nearly double the expected amount.

These overall figures, however, hide somewhat the underlying health of each state’s economy.

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It has become clear over the past year that increased government spending has been vital to keeping the economy afloat. The contribution of government spending and investment to GDP growth is now nearing the levels that occurred during the GFC.

In the 2018-19 financial year, the public sector contributed half of the growth of Australian GDP, despite only being around a quarter of the actual economy.

In NSW, more than 60 percent of the state’s growth came from the public sector — nearly three times the amount that would be expected given the size of the public sector in that state.

From this we can see that NSW, Queensland and Tasmania were the states most dependent upon the public sector for growth, and Victoria and Western Australia were the least dependent.

Thus when we look at the growth of the private sector, rather than overall GSP, Victoria is the strongest state, and NSW falls below the national average.

Where there is also widespread weakness is household living standards.

Every state has seen real gross household disposable income fall at least once in the past four years on a per capita basis, and the nation overall has had falling household living standards now for four consecutive years.

National household living standards in 2018-19 were actually below what they were in 2011-12, and this was broadly the case across all states. Only South Australia and Tasmania had higher levels of household disposable income per capita in 2018-19 than they did in 2011-12.

The GSP figures highlight the big problems the Australian economy is currently facing. Unlike in previous years when we had a two-speed economy, with the mining and non-mining states taking it in turns being the ones growing fast, now we mostly have a one speed economy — and that speed is slow.

And while exports are largely ensuring we are nowhere near a recession, the weakness of the private sector across all states and the need for government spending — both state and federal — to do more than its share highlights how fragile the economy across the nation remains.

And it is a large reason why household living standards remain completely stagnant.

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