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The Truth About Australia's GDP Growth

In theory, the Australian economy is ticking over nicely, with the Australian Bureau of Statistics (ABS) recording yet another quarter of stronger than expected GDP results. According to a growing number of commentators, however, the traditional way to measure economic prosperity has become worthless as a measure of personal wealth and well-being. Despite solid GDP figures, Australians are still struggling with low wages growth, low personal savings, high energy bills, and high levels of personal debt.

There used to be a time when solid national growth figures corresponded to wages growth and real improvements in living standards. Like many things in the modern world, however, there seems to be a disjunct between the official numbers and the experience on the ground. According to Melinda Cilento, chief executive economist from CEDA ( Committee for Economic Development of Australia), “I think people are saying ‘26 years of growth, great, but what matters to me is my experience right here, right now and that aggregate [GDP] number is not a proxy for my sense of improved living standards."

Despite the problems faced by Australian households, national economic growth actually picked up pace over the last quarter, increasing by 3.4 percent in the year ending June. While strong results were fuelled mostly by consumer spending, this spending is increasingly being financed by shrinking household savings and growing household debt. According to the ‘Australian National Accounts: National Income, Expenditure and Product’ report released earlier this year by the ABS, the household savings ratio is at its lowest level since December quarter 2007.

Part of the reason for such a low level of savings is the decline in wages growth over the last few years. According to the Wage Price Index released by the ABS, the pace of annual wages growth has basically halved over the last decade. While wages were growing by 4.3 percent in 2008, they are now growing by just over 2 percent. Despite a bump during 2010, wages growth has declined significantly since mid-2012 and shows no real signs of improving. The steepest decline was recorded in the period of June 2012 to December 2013.

Reduced personal savings cannot be attributed solely to weak wages growth, however, with Australian consumers also living with more credit-induced household debt than ever before. Despite weak wages growth over the same period, the demand for consumer credit has increased dramatically since the credit crisis in 2008. Because Australia faired fairly well during this time, consumers failed to learn the same lessons as other countries. Whether it’s housing debt, credit cards, or personal loans, Australian households are living with an additional $1.2 trillion of consumer debt since 2008. In many ways, our healthy GDP figures are built on the back of unsustainable personal and government borrowing habits.


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