I was surprised to read in the NAB Australian Markets Weekly that for the past three years real income per person in Australia has been falling and is now back to levels that were evident in late 2008. The graph shows the level of real income per person with the recessionary periods marked in grey. From the last recession in 1991 up to the Global Financial Crisis in 2008 Australians have experienced a continued rise in the level of their real incomes. Nevertheless how can it be that with GDP growing at about 3% a year real levels of income have been falling?
1. Growth in aggregate real GDP has been boosted a great deal by the sharp growth in the population – Australia’s population grew 1.7% in 2013.
2. While Australia are seeing good growth in the “volumes” of GDP, particularly as some of the new mining capacity has been coming on stream, they are receiving lower prices for this output due to falling commodity prices.
As a nation, they are working harder for less income.
Here are Gross domestic product per capita figures for the 34 member countries of the OECD (Organisation for Economic Co-Operation and Development) for the 2012 calendar year on a purchasing power parity (PPP) basis. Purchasing power parity (PPP) is when an amount of money in one country can be exchanged for a quantity of foreign currency, and the two amounts will buy identical baskets of products in both countries – see recent post on the Big Mac Index.
The OECD is a group of countries that share a commitment to democratic government and the market economy. New Zealand has been a member of the OECD since May 1973. Currently, there are 34 member countries, with four new members joining in 2010. These included Chile, Slovenia, Israel, and Estonia.
Useful graphic from The Economist that shows the % change in GDP from 1999 – 2014.
1999 was when the Euro currency was introduced and with Latvia joining the currency bloc at the start of this year that makes 18 members. Spain, Greece, Portugal and Italy have struggled since the GFC especially Italy – negative GDP. Germany’s GDP per person has increased by over 20% since 1999. Benefitting from export revenue in recent times with a weak euro.
Here is a great chart from The Economist website.
The countries where GDP per head grew fastest between 2001 and 2010—Equatorial Guinea, Azerbaijan and Turkmenistan—are all rich in natural resources, and were beneficiaries of the past decade’s boom in commodity prices.
Haiti and Zimbabwe have both explored how much ruin there is in a nation over the past decade and show little sign of improving. They are two of only 15 countries that have seen negative growth since 2001. Slow population growth also helps: although America’s economy has grown considerably faster than Japan’s since 2001, Japan’s population has shrunk while America’s has risen. This means that income per head in Japan has grown almost as rapidly as in America over this period.