Westpac has released a report on Australia’s economic outlook that highlights the underlying fragility of the economy.
“The Australian economy limped into 2024, with economic activity expanding just 0.1% over the first three months of the year”, notes Westpac.
“Over the year to the March quarter, the economy expanded 1.1%yr – the slowest pace since the early 1990s recession, outside of the pandemic”.
“The extent of the weakness is particularly telling when considered against population growth, which is running at 2.4%yr. Australia has now recorded four consecutive quarters of declining per capita GDP”.
Westpac notes that the Australian economy is being held up by record public spending:
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“Domestic demand edged 0.2% higher over the quarter with solid growth in public demand balancing near-flat private demand, which includes assistance to households in the form of electricity subsidies”.
“As a share of the economy, public demand reached 27.2% of GDP, eclipsing the pandemic peak of 27.1% and well above the pre-pandemic average of just over 22%, illustrating the growing size of public demand in the economy”.
This record public demand has come from two primary sources: record infrastructure investment from the states and enormous growth in NDIS and aged care spending from the federal government.
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The above charts on economic growth are being reflected in the labour market, where ‘government-aligned’ jobs are booming, whereas market sector jobs are flatlining:
The unprecedented growth in personal care jobs is particularly startling:
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The reality is that without the stimulus of record public spending, the Australian economy would be experiencing a technical recession and a very deep per capita recession.
The explosion of public spending has driven the combined state and federal governments deeper into debt:
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It is also contributing to Australia’s poor productivity growth, given that ‘government-aligned’ jobs are typically far less productive than market sector jobs:
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Australia is turning into a bedpan economy reliant on public sector support.