The September GDP figures released yesterday marked the point that the Australian economy ran out of luck, and while that misfortune might only be temporary, it highlights how fragile the economy has been for some time, even as it outgrew most of the developed world.

While there was a general consensus among economists that the Australian economy went backwards in the September quarter, it was still a shock when the ABS announced that in seasonally adjusted terms it shrunk 0.5% – the second biggest drop in a quarter of a century:

The annual growth picture is not much better – a drop in seasonally adjusted terms from 3.1% to 1.8%. It’s the biggest drop in over 15 years, and gives us the worst annual growth this century outside the GFC period.

Even the trend figures offer little solace.

The quarterly trend growth of 0.2% is as bad as the worst experienced during the GFC, and the annual growth of 2.2% is a full percentage point below the 20 year average of 3.2%:

It therefore wasn’t surprising that the treasurer Scott Morrison chose to focus on comparison with overseas than with the past.

In his press conference he suggested that Australia’s “annual real growth is still higher than six out of the world’s G7 economies”, was “second only to the United Kingdom”, and was higher than “the US, Canada, Japan, Germany, and higher than the OECD average.”

That is all true, although when comparing us to the whole of the OECD rather than just the G7 we are rather more middle of the pack, and when you look at this latest quarter, we are now second last:

So what happened?

Well it is more the case of what did not happen.

In much of the past year, our economy has been teetering on the edge of going backwards, but there has always been one thing to keep us in positive territory.

Last quarter it was an abnormal and mostly coincidental surge of public investment in a couple states, in the March quarter it was a surge in net exports, as it was this time last year.

The problem with being reliant upon exports and public investment is that those two measures are notoriously erratic.

In the September quarter, because imports grew by more than our exports, net exports (exports minus imports) detracted 0.2% from GDP growth. But just two quarters ago net exports added 1% to growth, three quarter ago they added nothing, and this time last year, they contributed 1.2%.

In short, not the type of thing you want to rely on for steady growth:

Public investment is much the same.

In the June quarter, public investment contributed 0.7% towards GDP – that is more than the actual 0.6% GDP growth of that quarter. Take that away, and our economy would have shrunk.

This quarter it was taken away – rather than adding to GDP growth, this quarter public investment detracted 0.5% pts:

But while it would be easy to say it was just a confluence of bad timing that led to our economy shrinking, the reality is given the fragility of the economy it is more a confluence of good timing that has kept us going, and this quarter without such luck, it all went bad.

GDP growth is essentially a combination of five things – government and household consumption, private and public investment (which make up “final demand”), and net exports.

For the first time this century, four of those five aspects detracted from GDP growth. Only household consumption added to growth:

The drop in public investment was across the nation – only Northern Territory had an increase in the September quarter:

And while it is no surprise that private investment continues to fall, the bad news for the government in this quarter was that private dwelling construction also fell. There are certainly signs that the housing construction boom is coming slightly off the boil.

The annual growth of the construction of dwelling is the lowest is has been for two year in trend terms – something that would have many wishing the Reserve Bank board met today rather than on Tuesday before these figures were released:

The only segment of the economy this quarter that was really driving growth rather than holding it back was household consumption. But even here things are not all that rosy.

In the past 12 months households increased their consumption by 2.6% – down from 2.9% in the June quarter.

And the level of household consumption is among the most marked change in the economy since the GFC.

Australia has always relied upon household consumption to drive growth. In the eight years prior to the GFC consumption grew on average by 3.95%; since then it has been just 2.5%:

And this weakness of consumption and investment means a weakness in what has traditionally been Australia’s driver of GDP growth – demand.

Despite our position as a mining nation, net exports have not traditionally been a bigger driver of growth than demand. Demand is much more stable – household consumption and private investment are less subject to spot prices and one-off occurrences – such as a large purchase of mining equipment that causes a bounce in imports.

But now net exports contribute as much as do consumption and investment combined:

That makes for a generally lower and also more unstable type of growth.

In the 30 years prior to the GFC, demand contributed on average 3.6% to annual GDP growth – a level net exports has never reached.

The reliance upon a number of small aspects means it doesn’t need too many things to have a bad quarter, for the entire economy to take a hit. That hit occurred in the September quarter, and the only shock really is that it hadn’t happened before.