Australia’s productivity declined this year for the first time since the mining boom, according to the Productivity Commission’s latest analysis of productivity trends.
A strong labour market has supported continued economic growth, the report found, and output growth has continued Australia’s recession-free streak.
However, labour productivity declined this year, with poor outcomes across a range of industries.
PC chair Michael Brennan said output growth has been driven by strong growth in employment, rather than “doing things better”.
“Ongoing output growth has pushed Australia’s recession-free hot streak out to 28 consecutive years, a record that is the envy of policymakers the world over,” he noted.
“That said, this year, Australia’s productivity has slid backwards for the first time since the mining boom.
“The result is that the labour and multifactor productivity performance of the market sector, where measurement of performance is most accurate, has continued to deteriorate.”
In 2018-19, labour and multifactor productivity in the market sector fell by 0.2% and 0.4% respectively.
But it wasn’t all bad. While labour productivity fell across the market sector as a whole, outcomes varied by industry. The largest decline occurred in the agricultural sector, while six out of the 16 market sector industries increased their productivity. Surprisingly, the largest increase was in arts and recreation — an industry that usually underperforms.
A combination of slowed labour productivity growth, consumer price inflation outpacing producer price inflation, and a fall in the labour share of income all contributed to weakened wages growth. The labour share of income decline was due to labour reallocation towards the mining sector and increased profitability in the finance sector.
Economy-wide growth in the output of goods and services was at its slowest in a decade, while market sector output growth was at its slowest pace since records began in the mid-1990s. A number of industries detracted from overall growth in output this year, the report found.
“Drought conditions and rainfall deficiencies through much of NSW, South Australia and southern Queensland saw agricultural output contract for the second consecutive year,” it stated.
“Construction and manufacturing also experienced decreases in GVA [growth value added] of 3.4 and 1.5% respectively.
“On the other hand, some industries continued to grow strongly … Outside the market sector, the health, aged care and social assistance industry’s GVA grew by 7.4% due to strong growth in public expenditure.”
The latest data have shown a pattern of weaker productivity outcomes in Australia since 2005, which reflects a slowdown in productivity growth globally, according to the PC.
“Such high-level productivity measures rarely provide guidance to policy makers about specific problems to target, but the sustained weakness in productivity data is rightly cause for concern,” the report noted.
The slowdown of Australia’s productivity growth has been less severe than in many other nations. In Australia’s case, the drop in labour productivity has been mainly due to slowing multifactor productivity growth.