The National Accounts confirm that Australia remains stuck in a nominal recession. Nominal GDP was flat in the June quarter and expanded by only 4% in the 2013/14 financial year. This follows disappointing growth of 2.5% in the 2012/13 financial year. The economy last posted two consecutive years of nominal GDP growth of 4% or less during the recession of the early 1990s (see chart).
In a speech today, the Reserve Bank Governor, Glenn Stevens, showed that Australia's per capita real GDP had outperformed other major industrialised countries since the financial crisis. The updated chart from a couple of years back is the foundation for why Mr Stevens believes that our glass is half full. But Australia's nominal rut for the past two years is testimony to the fact that many Australians believe (quite righty) that their glass is half empty. After all, households earn nominal wages, businesses generate nominal revenues and governments collect nominal tax revenues.
With Australia stuck in a nominal recession for two years, the corporate sector remains beset by anaemic revenue conditions. Is it little wonder then that the recurring themes from the full year reporting season were restructuring and cost cutting, designed to boost profitability. The anecdotal evidence is consistent with the small decline in aggregate hours worked in the June quarter. Aggregate hours worked has now stagnated for three years, which is striking given that Australia has been undergoing a population boom during this time (see chart).
The flipside of persistent weakness in labour market conditions is Australia's productivity renaissance. Growth in nominal GDP or value add per hour worked has expanded at an annualised rate of 3% in the past three years, comparable to the productivity boom of the late 1990s and early 2000s (see chart). The corporate sector's efforts to boost efficiency, profitability and free cash flow are (literally) paying dividends.
In his speech, Mr Stevens implores equity analysts, shareholders, fund managers and commentators to stop asking companies 'where's your cost cutting or capital return plan?' and to start to ask 'where is your growth plan?' But companies have little choice but to defer capital spending and trim costs as long as revenue headwinds persist.
These corporate trends are unlikely to change while Australia's economy remains stuck in a nominal rut. Mr Stevens continues to under-estimate the power of monetary policy to revive the corporate sector's animal spirits, and boost expectations of nominal GDP and revenue growth.
The more pressing question is where is your growth plan, Mr Stevens?