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National economy grows but some non-mining states in recession

Federal treasurer Wayne Swan said the National Accounts figures released today showed the Australian economy was doing better than every other major advanced economy. AAP/Alan Porritt

The Australian economy grew 0.6% last quarter but Victoria, South Australia, Tasmania and the ACT are now technically in recession, according to new Australian Bureau of Statistics data.

The new figures illustrate the extent to which the mining states like Western Australia and the Northern Territory are racing ahead while non-mining states fall behind.

The ABS’ Australian National Accounts: National Income, Expenditure and Product, Dec 2012 showed that gross domestic product, in seasonally adjusted volume terms, grew 0.6% in the December quarter 2012.

However, state final demand – the spending on fully finished products by households, firms and governments – fell for at least two quarters in a row in Victoria, South Australia, Tasmania and the ACT.

“A standard definition of recession is two consecutive quarters of negative economic growth. And one would say that condition has probably been met here,” said Associate Professor Neville Norman from the Department of Economics at the University of Melbourne.

The new ABS data showed that state final demand fell in Victoria last quarter by 0.7%, which followed a fall of 0.4% in the September 2012 quarter.

In South Australia, state final demand fell by 1.1%, after a fall of 0.7% in the September 2012 quarter.

In Tasmania, a fall of 1.3% in the September quarter was followed by a fall of 1.1% in the December quarter.

In the ACT, state final demand fell by 0.6% in the December quarter, which followed a 0.1% fall in the September quarter.

Some growth

By comparison, state final demand in Western Australia grew for two consecutive quarters – by 2.6% in the September quarter and then 1.4% in the December quarter.

In the Northern Territory, it grew by 6.1% in the September quarter and by 4.6% in the December quarter.

In NSW, state final demand grew by 0.4% last quarter, following a growth of 0.5% in the September quarter.

In Queensland, state final demand grew by 0.5% in the September quarter and by 0.2% in the December quarter.

Technical recession

However, Professor Norman said it all depended on what definition of recession one used.

“A broader definition looks at the diffusion index and not all of those indicate Victoria is in recession. A broader definition again looks at confidence indicators and confidence indicators, as judged by the Melbourne Institute, have not got Victoria in recession,” he said.

“I don’t think we should rely just on the narrow definition of two consecutive quarters. That’s on the border of being recession.”

The state final demand figures highlighted Australia’s two-tier economy but removing Western Australia and the NT from the picture still wouldn’t push Australia into recession over all, he said.

Associate Professor Graeme Wells, a macroeconomics expert at the University of Tasmania, said defining recession as two consecutive falls in growth was sometimes used as “a kind of political bat to beat people around the head with.”

“My personal view is that we are either doing well or not so well, and that does not necessarily depend on whether technically we have a recession,” said Professor Wells.

“For example, suppose we had an unemployment rate of 10% but we did not have two successive quarters of negative growth — we wouldn’t technically have a recession but we would be a lot worse than we would now with unemployment at 5.4% nationally.”

Professor Wells said today’s data confirmed Australia had a patchwork economy.

“The states that are doing poorly are the ones you’d expect: the non-mining states,” he said.

Federal treasurer Wayne Swan said today that Australia’s overall economic growth of 0.6% in the December quarter and 3.1% over the past year far outstripped every major advanced economy and the vast bulk of the developed world.

“Australia has managed to achieve solid growth in the December quarter at a time when around half of all advanced economies contracted, including five major advanced economies. Australia’s around-trend growth rate over the year is more than four times the OECD average,” he said.

Solid growth in the quarter was underpinned by strong growth in export volumes, he said, with exports making up the largest contributor to quarterly growth, growing by 3.3%.

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