27 years and counting since Australia’s last recession

Greg O’Brien, Statistics and Mapping

Key issue
The Australian economy has recorded an unprecedented stretch of economic growth since the ‘recession we had to have’ in 1991. This period of relative economic stability distinguishes Australia from other similar developed economies over a timeframe characterised by several periods of global economic volatility.

Twenty-seven years of economic growth

The latest release of the Australian National Accounts reported the 110th consecutive quarter since the Australian economy last faced a recession. This represents the longest period of growth without a recession for a developed country since the System of National Accounts was introduced internationally following World War II.

Economic growth is measured by the Australian Bureau of Statistics (ABS) in terms of gross domestic product (GDP)—a measure of the value of all goods and services produced in Australia in a given period. A recession refers to two consecutive quarterly periods where GDP decreases (often referred to as ‘negative growth’).

Figure 1 displays quarterly economic growth figures since the last recession in 1991 and shows that even individual quarters of negative GDP growth have been rare. There have been only three quarters recording a fall in GDP over the period: in December 2000 (during the dot-com crash and recession in many European countries); in December 2008 (during the global financial crisis); and in March 2011 (as a result of the Queensland floods).

Australia’s economic stability has translated to relatively high levels of average economic growth compared to other developed economies over the period. Australia has seen average annual economic growth of 3.3 per cent over the period from 1992 to 2017. Figure 2 shows that this compares favourably with other OECD countries. The only OECD members to have recorded stronger economic growth over the period are a group of middle-income countries (Korea, Chile, Turkey, Israel and Poland) that have shown accelerated growth while moving towards the productivity frontier; and two low company-tax countries (Ireland and Luxembourg) that have benefitted from multinational corporations headquartering operations in their jurisdictions.

Population growth and economic growth

One of the most observable and often-cited contributions to this period of strong economic growth has been Australia’s relatively strong population growth compared to other developed economies. Figure 3 shows annual average population growth for OECD members between 1992 and 2017. Australia recorded average population growth of 1.37 per cent over the period—the highest of any OECD member country of a comparable size and level of development. New Zealand and Ireland recorded strong economic growth over the same period (annual averages of just over 3 per cent and 5.5 per cent respectively) and also showed high population growth rates. The US and Canada (other countries with historically high levels of migration) recorded population growth rates closer to 1 per cent per year, and recorded average annual economic growth of 2.4 per cent. In general, European countries showed much lower rates of population and economic growth over the period.

Figure 1: quarterly GDP growth, Australia, 1991 to 2018

 Quarterly GDP growth, Australia, 1991 to 2018

Source: Australian Bureau of Statistics (ABS), Australian National Accounts: National Income, Expenditure and Product, Dec 2018, cat. no. 5206.0.

Figure 2: annual average GDP growth, OECD countries, 1992 to 2017

 Annual average GDP growth, OECD countries, 1992 to 2017

Source: OECD.Stat, gross domestic product dataset.

Figure 3: annual average population growth, OECD countries, 1992 to 2017

 Annual average population growth, OECD countries, 1992 to 2017

Source: OECD.Stat, population statistics dataset.

Population growth has a complex interaction with economic growth. When the economy is strong, population growth allows the economy to expand at a rate closer to its full potential, particularly when migration facilitates matching between labour demand and labour supply. When the economy is weak, however, population growth may not be absorbed by the labour market and may lead to an increase in unemployment or a decrease in labour force participation. Population growth also has a direct effect on GDP through higher levels of household consumption. For further information about the implications of demographic trends, see 'Population' elsewhere in this publication.

Growth in GDP per capita

Growth in GDP per capita shows how much economic growth is exceeding population growth, which is sometimes used as a rough measure of increasing living standards. In the absence of robust population growth, a recession in GDP per capita translates into a recession in overall GDP.

Australia recorded relatively strong growth in annual GDP per capita over the period 1992 to 2017 (Figure 4), but did not outperform other OECD countries to the same degree as growth in overall GDP or population. This underscores the importance of population growth in accounting for the resilience of the Australian economy since the last recession.

Figure 5 shows quarterly growth in GDP per capita since the last recession. Compared to overall GDP growth, there are many more quarters of negative growth in GDP per capita. There are also two ‘GDP per capita recessions’, in the first two quarters of 2006 and the two most recent quarters for which data is available (September and December 2018).

Export growth

Growth in trade has been a global trend over this period as supply chains become increasingly globalised. Figure 6 shows average annual real growth in exports of goods and services for OECD countries between 1992 and 2017. While the connection between export growth and GDP growth is particularly strong for some countries that have reported high levels of average annual GDP growth (including Ireland, Korea, and Poland), all countries in the OECD reported higher levels of export growth than GDP growth over the period (with the exception of Norway). This trend reflects the increasing role of trade in economies around the world, and the ability of export growth to drive economic growth.

Figure 6 also shows that Australian growth in exports, while robust, was not particularly high compared to other OECD countries. While this does not diminish the importance trade has played in Australian growth over the period, it suggests that export growth is a trend Australia shares with other OECD countries.

Industry-level contributions to GDP growth

The consistency of Australian growth since 1991–92 has been fostered by a reasonably balanced contribution across many sectors of the economy. Table 1 summarises key industry-level components (Industry-Value Added (IVA)) of GDP. These figures bear out some well-known broad industry trends, including the relative decline of Australian manufacturing, the increased importance of services, and mining and construction booms.

Figure 4: annual average GDP per capita growth, OECD countries, 1992 to 2017

 Annual average GDP per capita growth, OECD countries, 1992 to 2017

Source: OECD.Stat, GDP per capita and productivity growth database.

Figure 5: quarterly growth in GDP per capita, Australia, 1991 to 2018

 Quarterly growth in GDP per capita, Australia, 1991 to 2018

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2018, cat. no. 5206.0.

Figure 6: annual average growth in exports of goods and services, chain-volumes, OECD countries, 1992 to 2017

 Annual average growth in exports of goods and services, chain-volumes, OECD countries, 1992 to 2017

Source: OECD.Stat, gross domestic product database.

The decline of Australian manufacturing

The decline in the relative importance of the Australian manufacturing industry has been identified as one of the long-term structural trends in the Australian economy. This trend can be seen in a fall in the share of GDP represented by manufacturing, from 10.7 per cent in 1991–92 to 5.8 per cent in 2017–18.

It is important to note that the decline in the contribution of manufacturing industry has been relative, not absolute. As detailed in Table 1, the manufacturing industry has grown in real terms since 1991–92, at an annual rate of 0.9 per cent. The decline in the importance of manufacturing stems from the fact that this rate of growth is much lower than growth in the economy as a whole.

The rise of the service economy

Another major structural change in the Australian economy is the increasing importance of service sectors, including business services. Table 1 shows that the largest industry in terms of contribution to GDP in the Australian economy is now financial and insurance services, which represents 8.7 per cent of GDP. This sector has also contributed more to growth since 1991–92 than any other industry, growing at an average annual rate of 4.6 per cent between 1991–92 and 2017–18. Other service industries—such as ‘Professional, scientific and technical services’ which grew at an average annual rate of 4.9 per cent; and ‘Health care and social assistance’ which grew at an average annual rate of 4.4 per cent over the period—also exceeded the average annual growth rate of the economy as a whole.

Mining

The expansion of the mining industry, another well-noted recent trend in the economy, is also evident from the figures in Table 1, which includes sector level data for Australia’s three largest mining sectors: iron ore; coal; and oil and gas. Mining as a whole grew at an average annual rate of 4.3 per cent over the period. However, coal mining grew at an annual average rate of 4.8 per cent, while iron ore mining grew at an annual average rate of 9.0 per cent. This equates to a seven-fold increase in the real value of iron ore mining IVA between 1991–92 and 2017–18.

Construction

Partly as a result of strong population growth, the construction industry grew at an annual average rate of 4.5 per cent over the period, representing 9.3 per cent of total GDP growth by industry. This was the second largest contribution to GDP growth after ‘Financial and insurance services’.

Conclusion

There are many factors that have driven Australia’s strong period of growth since the last recession in 1991, including strong population growth, robust export growth and balanced growth across industries. However, recent weakness in productivity, real wage growth and housing construction demonstrates the importance of economic policy in continuing the Australian economy’s record stretch of growth.

Table 1: industry value added (IVA), by industry/sector (percentages)

Industry/sector Share of
GDP
1991–1992
Share of
GDP
2017–18
Total
growth
1991–92 to
2017–18*
Average
annual
growth
Contribution
to total GDP
growth
Agriculture, forestry and fishing 3.3 2.5 81 2.3 2.0
Mining 6.0 7.7 199 4.3 9.0
   Coal Mining 1.5 2.2 240 4.8 2.7
   Oil and gas extraction 1.6 1.6 133 3.3 1.6
   Iron ore mining 0.7 2.7 851 9.0 4.2
Manufacturing 10.7 5.8 26 0.9 2.1
Electricity, gas, water and waste services 3.9 2.5 45 1.4 1.3
Construction 5.8 7.8 211 4.5 9.3
Wholesale trade 3.5 3.9 159 3.7 4.2
Retail trade 3.9 4.3 158 3.7 4.6
Accommodation and food services 2.6 2.4 111 2.9 2.2
Transport, postal and warehousing 4.5 4.6 136 3.4 4.7
Information media and telecommunications 1.6 2.5 265 5.1 3.2
Financial and insurance services 6.3 8.7 222 4.6 10.6
Rental, hiring and real estate services 2.8 2.9 147 3.5 3.1
Professional, scientific and technical services 4.5 6.8 249 4.9 8.5
Administrative and support services 2.9 3.2 159 3.7 3.5
Public administration and safety 6.4 5.1 86 2.4 4.2
Education and training 6.0 4.7 80 2.3 3.6
Health care and social assistance 5.2 7.0 209 4.4 8.3
Arts and recreation services 0.8 0.8 132 3.3 0.8
Other services 2.2 1.8 85 2.4 1.4
Gross domestic product † 100.0 100.0 132 3.3 100.0

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2018, cat. no. 5206.0.

Notes:

* Total growth represents aggregate real (chain-volume) growth per industry/sector over the full period.

† Sub-totals do not sum to GDP as ownership of dwellings, and taxes less subsidies have been excluded.

Further reading

The Reserve Bank of Australia’s quarterly Bulletin presents regular articles on structural trends in the Australian economy.

OECD, Economic survey of Australia 2018, OECD, Paris, 10 December 2018.

 

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