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Has the gloss finally worn off the Aussie economy?

Having rubbed shoulders with global leaders at the G20 meeting in China, Prime Minister Malcolm Turnbull said “Our economic performance is the envy of most of those countries around the G20 table. There are very few developed nations that have economic performance as strong as Australia’s”.

Mr Turnbull is wrong.

There is no doubt that for the bulk of the past couple of decades, Australia has been a star performer with continuous economic growth, sound budget settings and rising incomes. Australia was one of very few countries to avoid recession during the global financial crisis in the period from 2008 to 2010.

More recently, the gloss has warn off the Australian economy. This is most notably showing up in the unemployment rate which remains higher today than during the GFC. In most other G20 countries, the unemployment rate has fallen as economic recovery has gained traction.

The table below outlines the latest data in the unemployment rate from each G20 country. On that score, Australia has the twelfth highest reading for the unemployment rate. It is not a particularly favourable performance for Australia which Mr Turnbull suggests other countries envy.

Unemployment in G20 countries

Country          Unemployment rate
Japan                    3.2%
South Korea          3.6%
Mexico                   4.0%
China                     4.1%
Germany                4.2%
India                       4.9%
United Kingdom      4.9%
United States          4.9%
Russia                     5.3%
Indonesia                5.5%
Saudi Arabia           5.6%
Australia                  5.7%
Canada                   7.0%
Argentina                9.3%
Turkey                     9.4%
France                    9.9%
Italy                       11.4%
Brazil                     11.6%
South Africa           26.6%

The relatively high unemployment rate in Australia compared most other G20 countries is a function of seven years of sub-trend economic growth. As the terms of trade fell, national income declined which impeded the speed at which the economy could grow which in turn underpinned the unemployment rate.

Economic policy is Australia has, in recent years, been over reliant on monetary policy and a series of record low interest rates to try to boost growth. Fiscal policy, on the other hand, has been framed around spending cuts and tax revenue increases.

Interestingly, during the Labor Party Rudd/Gillard years in office, the unemployment rate averaged 5.1 per cent, which included the GFC. The fiscal policy stimulus clearly support jobs and growth and kept the unemployment rate remarkably low.

Under the Abbott/Turnbull years in office, the unemployment rate has averaged 6.0 per cent even though in recent months is has edged a little lower. Just prior to the GFC, the unemployment rate in Australia hovered in a range between 4 and 5 per cent. Eight of the G20 countries currently have an unemployment rate at these levels – or lower.

There is nothing on the horizon to suggest that Australia will get unemployment back to these levels at any stage. Treasury is forecasting the unemployment rate to hold around 5.5 per cent for the next two years.

While this unemployment rate may be the envy of South Africa, Brazil, Italy, France, Turkey and Argentina, eleven of the G20 countries are delighted that they do not have an unemployment rate as high as in Australia. Our economy is doing reasonably well, but it is no longer the envy of the world.