During the recent inflationary episode, the RBA relentlessly pursued the argument that they had to…
Australian National Accounts – GDP growth slows significantly – slipping towards recession under current policy settings
The Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, March 2025 – today (June 4, 2025), which shows that the Australian economy grew by just 0.2 per cent in the March-quarter 2025 (down from 0.6 per cent) and by just 1.3 per cent over the 12 months. GDP per capita growth was negative -0.2 per cent as output growth was outpaced the underlying population growth. There was a major slowdown in household consumption expenditure growth and the government sector overall contracted. While the overall slowdown led to a decline in import expenditure (which adds to growth), the decline in exports was greater, which means that the external sector detracted from growth overall. The problem is that as the overall growth rate declines, it is getting to the stage where unemployment will start to rise.
The main features of the National Accounts release for the March-quarter 2025 were (seasonally adjusted):
- Real GDP increased by 0.2 per cent for the quarter (0.6 per cent last quarter). The annual growth rate was 1.3 per cent (stable)).
- GDP per capita fell 0.2 per cent for the quarter and 0.4 per cent for the year, signalling declining average income.
- Australia’s Terms of Trade rose 0.1 per cent for the quarter but were down by 4.1 per cent over the 12 month period.
- Real net national disposable income, which is a broader measure of change in national economic well-being, rose by 0.6 per cent for the quarter and 0.2 per cent over the 12 months.
- The Household saving ratio (from disposable income) rose to 5.2 per cent (from 3.9).
Overall growth picture – growth continues at much slower rate
The ABS – Media Release – said that:
Australian gross domestic product (GDP) rose 0.2 per cent in the March quarter 2025 and 1.3 per cent compared to the March quarter 2024 …
Economic growth was soft in the March quarter. Public spending recorded the largest detraction from growth since the September quarter 2017. Extreme weather events reduced domestic final demand and exports. Weather impacts were particularly evident in mining, tourism and shipping …
GDP per capita fell 0.2 per cent this quarter, following a 0.1 per cent rise in the December 2024 quarter.
The short story:
1. The weakness in private domestic demand continued although household consumption expenditure returned modest positive contributions to growth in this quarter.
2. Government consumption expenditure was flat while capital spending contracted.
3. The contribution of Net exports was negative.
The next graph shows the quarterly growth over the last five years with the extreme observations during the worst part of the COVID restrictions and government income support taken out.
To put this into historical context, the next graph shows the decade average annual real GDP growth rate since the 1960s (the horizontal red line is the average for the entire period (3.29 per cent) from the March-quarter 1960 to the March-quarter 2025).
The 2020-to-now average has been dominated by the pandemic.
But as the previous graph shows, the period after the major health restrictions were lifted generated lower growth compared to the period when the restrictions were in place.
If we take the observations between the December-quarter 2020 and the December-quarter 2022 out, then the average since 2020 has been 1.7 per cent per annum.
It is also obvious how far below historical trends the growth performance of the last 2 decades have been as the fiscal surplus obsession has intensified on both sides of politics.
Even with a massive household credit binge and a once-in-a-hundred-years mining boom that was pushed by stratospheric movements in our terms of trade, our real GDP growth has declined substantially below the long-term performance.
The 1960s was the last decade where government maintained true full employment.
A GDP per capita recession looks set to resume
In the December-quarter 2024, GDP per capita grew by 0.1 per cent marking the end of 7 consecutive quarters of negative growth.
That negative streak is back which means in the March-quarter 2025, total output averaged out over the entire population was in contraction.
The meaning of the average is questionable, given the highly skewed income distribution towards the top end.
Given that, if the average is declining, then those at the bottom are doing it very tough indeed.
The following graph of real GDP per capita (which omits the pandemic restriction quarters between December-quarter 2020 and December-quarter 2021) tells the story.
Analysis of Expenditure Components
The following graph shows the quarterly percentage growth for the major expenditure components in real terms for the December-quarter 2024 (grey bars) and the March-quarter 2025 (blue bars).
- Significant decline in quarterly GDP growth – 0.21 per cent in March-quarter 2025 compared to 0.57 per cent in December-quarter 2024.
- While import growth was negative (and declining) the contraction in exports was larger.
- The government sector expenditure (recurrent and capital) growth contracted.
- Household consumption expenditure growth fell.
Contributions to growth
What components of expenditure added to and subtracted from the change in real GDP growth in the December-quarter 2024?
The following bar graph shows the contributions to real GDP growth (in percentage points) for the main expenditure categories. It compares the March-quarter 2025 contributions (blue bars) with the previous quarter (gray bars).
- Household consumption expenditure added 0.2 points (-0.1 point).
- Private investment expenditure added 0.1 point (stable).
- Net exports subtracted 0.1 point from growth – the 0.2 point export contraction outweighed the 0.1 point import gain (remember negative import expenditure growth constitutes a boost to growth).
- Overall government contribution was negative.
The next graph was published yesterday (June 3, 2025) by the ABS in their – Government Finance Statistics, Australia – release.
It shows the evolution of contributions by government to GDP growth since the March-quarter 2022.
Recurrent spending by government has now fallen to a zero contribution to GDP growth while government capital expenditure undermined growth in the current quarter.
Material living standards rose 0.2 points in the March-quarter
The ABS tell us that:
A broader measure of change in national economic well-being is Real net national disposable income. This measure adjusts the volume measure of GDP for the Terms of trade effect, Real net incomes from overseas and Consumption of fixed capital.
While real GDP growth (that is, total output produced in volume terms) rose by 0.2 per cent in the March-quarter, real net national disposable income growth rose by 0.6 per cent.
How do we explain that?
Answer: The terms of trade were positive in the March-quarter and compensation of employees (COE) increased 1.5 per cent.
In per capita terms, real net national disposable income improved by a small margin (0.1 per cent) for the quarter but over the year there was a 1.4 per cent decline and since mid-2022, the decline has been 4.7 per cent.
So, on average, Australians are worse off now in material terms that they were 12 months ago.
Household saving ratio rose 1.3 points to 5.2 per cent
The RBA tried to wipe out the household saving buffers as it hiked interest rates hoping that this would reduce the likelihood of recession.
Of course, that process attacked the lower-end of the wealth and income distribution, given the rising interest rates have poured millions into those with interest-rate sensitive financial assets.
It is now clear that households are becoming cautious – reducing overall expenditure growth and increasing their saving out of their disposable income.
The following graph shows the household saving ratio (% of disposable income) from the December-quarter 2000 to the current period.
It shows the period leading up to the GFC, where the credit binge was in full swing and the saving ratio was negative to the rise during the GFC and then the most recent rise.
An increasing saving ratio provides the household sector overall with an increased capacity to risk manage in the face of uncertainty.
The next graph shows the saving ratio since 1960, which illustrates the way in which the neoliberal period has squeezed household saving.
Going back to the pre-GFC period, the household saving ratio was negative and consumption growth was maintained by increasing debt – which is an unsustainable strategy given that household debt is so high.
Even though the ratio has been rising slightly in recent quarters, it is still well below past levels.
The following table shows the impact of the neoliberal era on household saving. These patterns are replicated around the world and expose our economies to the threat of financial crises much more than in pre-neoliberal decades.
The result for the current decade (2020-) is the average from June 2020.
| Decade | Average Household Saving Ratio (% of disposable income) |
| 1960s | 14.4 |
| 1970s | 16.2 |
| 1980s | 11.9 |
| 1990s | 5.0 |
| 2000s | 1.4 |
| 2010s | 6.6 |
| 2020s on | 8.8 |
| Since RBA hikes | 3.4 |
Real GDP growth rose but hours worked rose more and productivity growth declined
Real GDP rose 0.2 points in the quarter, while working hours rose by 0.1 per cent.
Which means that GDP per hour was essentially unchanged (after rounding).
However, the data shows that GDP per hour worked fell by 0.9 point for the quarter – that is, a decrease in labour productivity.
That is the third consecutive quarter of declining productivity growth.
The ABS is going to release more detailed productivity growth data next quarter, which will allow us to be more precise in terms of understanding which sectors are contributing to the malaise.
But the evidence to date is that the ‘market-sector’ is providing modest productivity growth while the ‘non-market sector’ (education etc) is bringing the overall figure down.
There are massive measurement issues encountered in assessing non-market sector productivity growth and so the aggregate result might not be as poor as is suggested.
The following graph presents quarterly growth rates in real GDP and hours worked using the National Accounts data for the last five years to the March-quarter 2025.
To see the above graph from a different perspective, the next graph shows the annual growth in GDP per hour worked (labour productivity) from the beginning of 2008 to the March-quarter 2025.
The horizontal red line is the average annual growth since the March-quarter 2008 (0.84 per cent), which itself is an understated measure of the long-term trend growth of around 1.5 per cent per annum.
The relatively strong growth in labour productivity in 2012 and the mostly above average growth in 2013 and 2014 helps explain why employment growth was lagging given the real GDP growth.
Growth in labour productivity means that for each output level less labour is required.
The distribution of national income – wage share steady
The wage share in national income was steady at 53.7 per cent in the March-quarter 2025.
The profit share fell to 27.5 per cent (down 0.1 point).
The residual is largely the government share.
The first graph shows the wage share in national income while the second shows the profit share.
The declining share of wages historically is a product of neoliberalism and will ultimately have to be reversed if Australia is to enjoy sustainable rises in standards of living without record levels of household debt being relied on for consumption growth.
Conclusion
Remember that the National Accounts data is three months old – a rear-vision view – of what has passed and to use it to predict future trends is not straightforward.
The Australian economy grew by just 0.2 per cent in the March-quarter 2025 (down from 0.6 per cent) and by just 1.3 per cent over the 12 months.
GDP per capita growth was negative -0.2 per cent as output growth was outpaced the underlying population growth.
There was a major slowdown in household consumption expenditure growth and the government sector overall contracted.
While the overall slowdown led to a decline in import expenditure (which adds to growth), the decline in exports was greater, which means that the external sector detracted from growth overall.
The problem is that as the overall growth rate declines, it is getting to the stage where unemployment will start to rise.
Clarification on terminology
I advocated a degrowth strategy for the global economy overall given that our footprint is 1.7 times the capacity of the biosphere to regenerate.
To achieve that strategy, given that many poorer nations must continue to grow, will require rather substantial cut backs in spending and consumption in the richer nations.
When I analyse the National Accounts data or any expenditure/output data, I write as if growth is ‘good’.
But that terminology is used in the context that without economic growth and without any substantial shifts in income distribution and government transition policies, trying to pursue a recessionary strategy would damage the weakest members of our society disproportionately.
In some respects, I am abstracting from the damaging reality of our ecological footprint.
That is enough for today!
(c) Copyright 2025 William Mitchell. All Rights Reserved.
Bill makes a great point. Under current economic structures and arrangements, degrowth (a reduction in GDP) will affect the most vulnerable people in the worst possible way – rising unemployment and lower incomes for people who are already struggling to keep the economic water going over their heads.
At the same time, the global Ecological Footprint (EF) rises because the percentage increase in GDP is invariably higher than the percentage decrease in the EF-intensity of GDP. That said, if population growth had been curtailed, the EF would have remained steady for the past 50 years and below the Earth’s Biocapacity (BC).
F = P x A x R
* F = EF
* P = population
* A = affluence = GDP/P
* R = resource-intensity or EF-intensity of GDP = F/GDP
* Note: P x A = GDP; affluence (A) = per capita GDP
Therefore, F = P x GDP/P x F/GDP
This is a true equation, unlike Paul Ehrlich’s IPAT identity (my FPAR equation is a variation on Ehrlich’s identity).
Over the past 50 years, F has doubled (2x); P has doubled (2x); A has doubled (2x); R has halved (0.5). If global population had remained as it was in 1975 (4 billion), A and R would have cancelled each other out; F would have remained at 0.85BC. The global economy would have remained sustainable (EF < BC).
Since EF = 1.7BC at present (grossly unsustainable), finding ways to reduce GDP (degrowth) and bring EF back below BC while maintaining full employment and decent minimum incomes for the world's poorest people is a huge challenge. It will require a massive redistribution of income and wealth to the poor and a huge decline in the income of the very rich (who won't be any worse off, since the marginal utility of their consumption is zero). A Universal Basic Income (UBI) is not the way to deliver a minimum living income to the world's poor. It should be done through the introduction of a Job Guarantee (JG) – attaching the minimum income with meaningful work. The beauty of the JG is that it would automatically achieve full employment and an income floor in a degrowth world.
Degrowth means more than a decrease in GDP. It means quelling population growth and eventually bringing global population down to no more than 4 billion – another huge challenge. People might respond by saying that billions of people would miss out on a chance at life. They would be wrong. It would mean fewer people now but many more in the future. What humans have done to the planet has already reduced the number of people who will ever live as well as the number of people who will have the same opportunities in life as presently living people.
Why not write about how degrowth can be undertaken *without* damaging the weakest members of our society disproportionately?
Dear Bill
When are you going to get Dr Lawn to write a regular piece about ecological economics within an MMT framework.
Until there is another metric substituting for GDP, then there can be no meaningful empirical data that allows us to move towards a ‘degrowth’ situation.
We already know both the nature and scale of the problems conventional economic and human activity cause.
The lacunae in GDP are the crucial matters of sustainability; whether material resource utilisation is sustainable; how negative externalities like pollution are included; how depreciation of assets and depletion of productive capital stocks are assessed; and how human factors are integrated.
Even putting aside the complexities of applying qualitative decision making regarding degrowth to quantitative data, GDP is an unhelpful foundation.
Not all economic activity is harmful or damaging, so calculations that use GDP per capita as a base are hardly going to inform decision making.
One of the highest priorities has to be in differentiating between renewable and non-renewable resources in production, and either nudging or shifting economic production towards sustainable enterprises.
Neither the value added approach, of “gross value added minus intermediate consumption” or the sectoral balance equation of GDP as the sum of consumption, investment, government expenditures and net exports is of any material assistance in determining what future economic and human activity will be able to reduce the current ecological footprint, or is maintainable in the longer term.
The linked issues of remediation of damaged environments and loss of biodiversity further complicate planning for a sustainable future.
There is no way that current market mechanisms and growth goals will allow decision making that evaluates actions to cover remediation.
So we cannot plan for degrowth meaningfully. Yet this is what we need to do.