Gross domestic product (GDP) volume measures are commonly used as a proxy for material living standards and the overall state of an economy. The national accounts also present various economic aggregates in addition to GDP, including GDP per capita, real gross domestic income (RGDI) and real gross national income (RGNI). These measures provide additional insights into changes in Australia’s material living standards.
Analysis of national economic aggregates
Australian economy - through the year growth
Figure 1 provides comparisons of growth through the year to the December quarter 2020 and through the previous year to the December quarter 2019 for four economic aggregates. In contrast to 2019, economic outcomes in 2020 were heavily influenced by natural disasters early in the year, and COVID-19 for the rest of the year.
GDP fell by a record 7.0% in the June quarter 2020 as public health measures were implemented in late March, followed by near-record growth of 3.4% and 3.1% in the September and December quarters as the stringency of public health measures was relaxed. The partial recovery was reflected in a 1.1% fall in GDP through the year. GDP per capita was weaker, falling 1.8%, reflecting a 0.7% rise in population.
RGDI measures the purchasing power of incomes generated through the domestic production of goods and services. In contrast to GDP, RGDI rose 0.5% through the year reflecting an increase in the terms of trade (up 7.4%). This increase in the terms of trade was driven by an increase in prices received for Australian exports, most notably iron ore (up 37.1%). Often referred to as the ‘trading gain’, the increase in the terms of trade means that additional purchasing power is generated from each unit of Australian domestic production destined for export.
RGNI builds on RGDI and captures the impact of income flows between Australia and the rest of the world. RGNI grew 2.1% through the year, which was stronger than RGDI reflecting lower payments of property income to non-residents, driven by lower interest payments and dividends paid to foreign investors. This result can also be seen in the improvements to the current account surplus within the recently published balance of payments statistics.
A possible conclusion is that the economic recovery has been sufficient to return average material living standards to pre-pandemic levels since RGNI has grown significantly faster than population through the year to the December quarter 2020, and hence RGNI per capita has also grown through the year.
Through the year analysis however does not capture the cumulative impact of lower economic activity through 2020. This is captured by analysing year-on-year growth, which compares cumulative level over the year against the previous year.
Australian economy - year-on-year growth
The national accounts typically report year-on-year growth for financial years. To capture more timely cumulative effects, year-on-year analysis on a calendar year basis is included below.
GDP, GDP per capita, RGDI and RGNI all recorded declines in 2020 on a year on year basis. The stronger terms of trade and lower payments of property income to non-residents did not offset weaker GDP for RGDI and RGNI as was the case in through the year terms. Growth across all these aggregates was weaker than the equivalent through the year measures. This reflects the cumulative impact of the unprecedented fall in June quarter 2020 GDP when the COVID-19 pandemic had its most severe impact.