When was Australias last economic boom?

In July, the U.S. officially entered its longest expansion on record. Naturally, many are wondering if the expansion is sustainable. When asking this question, many turn to the Australian case, as it has been argued that Australia hasn’t had a recession in 28 years. But is this really the case?

The figure below shows the growth rate of Australia’s GDP, with recessions shaded gray. (Recessions are defined here as two or more consecutive quarters of negative GDP growth.)

According to this, Australia has not had a recession since 1991 and has been growing since.

However, when we look at real per capita GDP growth, the story changes. The figure below shows Australia’s per capita GDP growth rate. Again, recessions are shaded gray and defined as two or more consecutive quarters of negative growth.

As shown in the figure, Australia has had three recessions since 1991 when looking at GDP per capita, the most recent one being from the second quarter of 2018 to the first quarter of 2019.

This discrepancy between the growth rate of per capita GDP and the growth rate of GDP implies that population growth has been a key factor for Australia’s economic expansion. A rising population increases the size of the economy, and therefore total output increases, which is reflected in the level of GDP.

However, the fact that we do see economic downturns in per capita terms means that population is growing faster than GDP. For nearly 40 years, Australia has had a higher population growth rate than other industrialized economies, as seen in the figure below.

In particular, it had a surge in population around 2008—during the height of the global financial crisis—due to migration. This population growth translated to overall positive GDP growth, but its effect on GDP growth hasn’t been enough to prevent recessions in per capita terms. Per capita recessions are not unique to Australia. In the table below, we compare the number of observed recessions when using GDP growth versus per capita GDP growth for several OECD countries. Again, a recession is defined as two or more consecutive quarters of negative growth.

We found that most of these countries had more recessions when we looked at per capita GDP growth versus just GDP growth. This means that GDP is growing but oftentimes not fast enough to compensate for population growth. For example, although the U.S. has not had a recession since 2009, when we look at per capita GDP growth, the U.S. fell into a brief recession at the end of 2012.

So should we use Australia as a benchmark when thinking about possible duration of expansions? If so, we have to take it with a grain of salt because looking at just GDP growth doesn’t paint the whole picture. It is important to look at per capita GDP growth to have a broader view.

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Paul Tung has never seen anything like it before.

At 30 – he turns 31 this month – the former airline sales manager is too young to remember the last time Australia’s economy went backwards in the early 1990s.

He’s been laid off by airline Virgin Australia, which is teetering on the brink of collapse after it was grounded by government travel bans, and because the entire travel sector has been devastated by the coronavirus crisis he has so far had no luck finding a new job.

So far, some of the damage has been cushioned by increased unemployment benefits, and the support of his partner, Kevin, who still has a job.

But with an estimated 1.2 million people thrown out of work due to the coronavirus economic shutdown, Tung worries what will happen to him and others in the same boat if benefits revert to their usual levels in September, as Australia’s conservative government plans.

“I’ve still got a mortgage,” Tung says.

“If we can’t actually have a secure job by that time, we are quite screwed up.”

Last time Australia’s economy went backwards Tung was, as he says, “being born”. Mobile phones weighed as much as two kilos, hair metal was still big and George Bush – the older one – was president of the United States.

Since then, the country has enjoyed a run of 29 years of uninterrupted economic growth, fuelled by China’s apparently insatiable demand for coal and iron ore, that put the memory of recession, unemployment queues and boarded-up shopping strips beyond the reach of an entire generation.

Through drought, flood, the dot.com crash and even the global financial crisis, during which it was the only developed economy not to shrink, Australia continued to bloom – although for the past few years its citizens have suffered from stagnant wages growth, with the spoils of success instead flowing to company shareholders.

Now, young people are being hit the hardest by the downturn, with the bulk of an estimated 1.2 million jobs lost, ripped from industries including hospitality, the arts and retail that tended to employ large numbers people in their 20s or early 30s.

Gross domestic product shrank by 0.3% in the first three months of the year, and the economic forecasts are gloomy at best, with economists expecting the next set of numbers will be much worse.

And it is by no means clear that the federal government will repeat the rescue of a decade ago, when it pumped money into the pockets of householders and the broader economy, after emergency spending ends in September.

The early 90s recession, which got under way in late 1990 and lasted about a year, was the result of the end of the long, flashy economic boom of the 1980s coming crashing to a halt.

As dole queues and flannel shirts replaced corner offices and power shoulders, the then treasurer, Paul Keating, famously said it was “a recession that Australia had to have” – a claim the veteran economist Saul Eslake dismisses as an attempt to rewrite history.

Eslake, a former economist at several big banks including ANZ, says that while the growth of the economy since then makes the 1990s slump look small, it devastated people’s lives.

“It took a long time to get unemployment down, and that’s why people now use the term ‘scarring’,” he says.

“The longer people remain out of work, the harder it is to find work, and if they do find work it’s usually at lower wages.”

Because today’s recession was caused by a deliberate choice to shut down parts of the economy, rather than a financial collapse, Eslake is confident that more of those laid off this time – as many as three-quarters – will get to go back to their old jobs, even if at reduced hours.

“But there’s another cohort that won’t get their jobs back,” he says.

“If they’re in tourism or something like that, that’s going to be the last sector to recover so they might be out of work for a while.”

Eslake says the Australian economy’s golden streak of nearly 30 years was propelled by four factors – high migration, a strong relationship with major trading partner China, a housing boom and good macroeconomic policy.

But he fears all but good macroeconomic policy are now out of reach.

“We’ve had 30 years with those four things helping us along, with wind in our direction,” and three of them aren’t going to be there.

Adding to the grim picture, the Australian economy was already weak before the coronavirus crisis hit.

Growth was weak – last year, the country fell into in a “per capita recession” because economic growth was less than the increase in population – and since the end of the mining boom wages have been moribund, rising just 2.1% in the year to the end of March.

Inequality has increased since the early 90s, according to Australian Bureau of Statistics data compiled by the government’s in-house thinktank, the Productivity Commission.

So far, a conservative Coalition government has given no hint it wants to address these problems. Instead, much of the talk coming from the national capital, Canberra, has involved painting ideas such as cutting corporate regulation and reducing the power of Australia’s already-struggling union movement as solutions to the economic crisis.

Despite a historic aversion to deficit spending, the ruling Liberal-National Coalition has so far pledged a total of more than $130bn – more than 10% of the Australian economy – to keep things going through the shutdown.

The prime minister, Scott Morrison, and the treasurer, Josh Frydenberg, are now under pressure from a restive backbench to stop spending.

So far, the only economic stimulus program that goes out beyond September that the government has committed to is a relatively small $688m committed to funding home renovations.

Wayne Swan, who was treasurer of the Rudd government during the 2008 global financial crisis, dismisses the program as “boutique” and “fucking ridiculous”.

He says the government should learn both from his success during the GFC and the failures of his Labor party to deal properly with the 90s recession.

“The mistakes that have always been made, going back to the great depression, is that particularly conservatives, flick the switch to austerity too early,” he says.

He says his stimulus program restored confidence because of its “long tail” of construction projects, which gave business confidence to invest.

“They’ve got none of that, none of that,” he says.

“They’re reluctant players in a game they don’t believe in.”

Eslake thinks that in the end Swan’s government poured too much money into the economy, but he reckons that at the beginning of an economic crisis there is no way governments can know how bad it will get.

“You’re either going to do too much – or at least announce too much – or do too little,” he says.

“Knowing that you’re going to make one of those mistakes, in these circumstances the right mistake to make is to promise to do more than it turns out you need to do.

“If you do that you can always stop or wind it back once it’s clear that you’ve done too much. Whereas if you don’t do enough, not only will what you do not have worked, but you will have undermined confidence in your capacity to come up with the right amount when you try a second or third time.”

Meanwhile, the economic disaster is playing havoc with Tung’s life.

He was planning to get married to Kevin, “but we’ve had to postpone that, not only for the social distancing but also because of the finances”.

He feels bad that Kevin is now the sole breadwinner for the family and their dog, a 12-year-old Alaskan Malamute named Tyrese.

“The emotional effect is something we have to look into as well,” he says.

“I feel bad every day.”