Australia’s ‘National Accounts’ – little growth, other than in population

Investment Matters highlights our Top Eight insights on the ABS (Australia Bureau of Statistics) estimation of the size and growth of the Australian economy, the so-called National Accounts.

Each quarter, the ABS (Australia Bureau of Statistics) estimate the size and growth of the Australian economy, the so-called National Accounts. This is a particularly difficult task and shouldn’t be confused with accounting in general, especially the type of accounting that simply adds up economic transactions. 

Instead, National Accounts are, for the most part, a modelling exercise designed to provide a consistent approach that can be used across time and between countries. National Accounts concentrate heavily on the volume of production in the economy. 

The practical application of National Accounts is what makes them invaluable to investors. They provide vital information for assessing the merits of different countries’ government debt, inflation and interest rate outlook, and currency value. This is particularly important for those considering equity investments, as it offers a comprehensive view of the economic landscape. 

For equity investors, the topline details of GDP growth are less interesting than a range of sub-measures that provide insight into both future expectations and existing conditions. National Accounts play a crucial role in this, often providing a cross-check to the commentary that companies have already provided. If companies are reporting soft economic conditions and National Accounts don’t support that narrative, questions will be asked about what else could be driving company outcomes, highlighting the value of the National Accounts in the investment analysis process. 

The Q1 National Accounts (Jan-Mar 2024) are of significant importance as they reveal a broad slowing of the Australian economy, a trend that is likely to persist in the medium term. 

What is the punchline? As investors, we continue to avoid household spending, the banking sector, and most aspects of the domestic economy that rely on increases in wealth and prosperity. Instead, we are strategically positioned for more people, more government, more building and movement of goods, and more activity that benefits from catch up investment and infrastructure, a stance that instills confidence in our investment strategy. 

  1. The Australian GDP growth further slowed to +0.1 % q/q ;+1.1% yoy), significantly below the population growth (+0.6 % q/q; +2.4 % y/y). This led to the continuation of the ‘per capita recession’, with GDP per capita declining for a fifth consecutive quarter, indicating a challenging economic environment. 

Figure 1: Per capita recession continues – significantly below pre-covid trend 

2. Canada and New Zealand have also chosen population growth as the driver of economic expansion. While both Canada and Australia are expanding overall, they are collapsing in per capita terms (past 5 quarters in Australia). Of interest, economies that have contracted overall recently, including Japan and Germany, both have still delivered better per capita outcomes than Australia. 

Figure 2: Comparing Real GDP growth, 6mth annualised  

3. Recent weakness in growth reflects a broadening of the slowdown in the domestic economy. During 2023, the slowdown in growth was driven by households (as real incomes fell, reflecting higher taxes and interest rates). We’re now, however, seeing a broadening of the domestic slowdown to public and private investment, which both declined in Q1 and have seen their contribution to annual growth shrink. The chart below shows that despite spending most of the last decade seeing lower-than-average total business investment, even the small increases seen in 2022/3 have now reversed. With business no longer consistently investing, all of the work is now in the hand of the government 

Figure 3: Business investment and GDP – year-end standard deviation from average 

4. Despite population growth, overall consumption is no longer helping grow the economy either. The chart below shows quarterly growth in volumes of household spending is now barely positive. On a per capita basis, consumption is declining. 

Figure 4: Household Spending Growth – Quarterly volume growth, % 

 5. The reversal in consumption, supporting previous results seen in Retail Trade statistics, is driven by fragile disposable income growth. The chart below shows flat disposable income this quarter despite tremendous population growth. Like previous periods, any wage growth has been more than offset by inflation and interest costs. This follows from the prior year (calendar 2023), which saw all income growth swallowed by the combination of tax (red), inflation (purple) and interest costs (blue). 

Figure 5: Real Household Disposable Income Growth, quarterly contributions, % 

  1. Without enough income growth, especially per capita, the net result must be a reduction in savings. The chart below shows how savings have collapsed to a non-existent level, especially in cash terms, as headline savings rates include compulsory superannuation contributions. Two charts below show Savings Rates since 2007, and the outlook for savings based on the build-up of Savings during COVID, and the subsequent drawdown through 2026. 

Figure 6: Household Savings Rate 

7. The economy’s lack of income growth, despite the level of population growth, underlying wage price growth, and high inflation, is fundamentally due to a mixture of market power and exceptionally weak productivity. It is remarkable that productivity and market power do not command more political focus. The chart below shows that productivity, which was again relatively flat this quarter, has not improved for almost a decade. 

Figure 7: Outlook for Household Saving – MST Marquee forecasts 

8. The absence of investment, consumption, and income growth leaves the government as the sole growth engine. We doubt that the government is crowding out activity during such a period of population growth and higher interest rates. As equity investors, we must accept that this economy lacks its own capacity to grow and is likely to remain tepid without significant reform. National Accounts showed that government consumption rose +1% q/q in Q1, reflecting ongoing increases in spending from national and state & local governments. The main driver remains the increase in government benefits paid to households, including energy rebates and spending on medical services. Almost incredibly, the chart below shows that Public Demand, the total of Public Consumption and Public Investment has contributed all of the increase in GDP in year to Q1 2024 

Figure 8: Labour Productivity Index, non-farm GDP per hour 

Figure 9: Growth in GDP and Public demand, year-end growth, %ppts


This periods National Accounts reinforced our view that we need to be selective in our equity exposure. We remain wary of index positions that provide excess exposure to the weakening household sector. 

The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.

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