The shocking graph that shows how Australia has fallen behind the rest of the developed world in just the last year

Australians’ living standards continue to decline, according to one of Australia’s leading economists, who shared new data showing the country has fallen behind other developed countries in a key economic area over the past 12 months.

AMP chief economist Shane Oliver shared a graph on social media on Friday showing the change in labor productivity of more than seventeen other comparable economies over the past year, with Australia at the bottom of the rankings.

According to Oliver’s data, Australian labor productivity – a broad measure of the amount of product produced per labor hour – is expected to fall by more than 1 percent by 2024.

Other countries such as the US and Norway experienced positive labor productivity growth of around 2 percent, while Poland topped the list with an increase of 5 percent.

Labor productivity can be used as an indicator of the standard of living in a country, as higher production usually means workers are paid more and more is produced, making items cheaper.

“Australian labor productivity growth is at the bottom of the OECD… it is the fundamental reason why living standards in Australia are falling,” Oliver said.

The economist said a rise in government spending fueled the country’s decline in productivity as it did less to encourage private enterprise.

‘The increase in government spending is exacerbating the decline in productivity in Australia, with productivity falling a further 0.8 percent over the past year, as private market sector productivity consistently exceeds public sector productivity and as government spending undercuts private business investment pushing it away will likely worsen the weakness. in the productivity of the private market sector,” he explained.

Mr Oliver said weak productivity growth makes it harder to curb inflation and hampers long-term growth in GDP per capita, which in turn dampens living standards.

He added that government spending also made the RBA’s job harder as it had to keep interest rates high for longer as there was still high consumer demand.

High interest rates also “squeezed” private investment, he said.

“Federal and state governments must slow their spending to stop squeezing private spending and do more to fundamentally increase productivity, which requires tax reform, labor market deregulation and competition reforms,” he said.

He said governments working with the RBA to cut spending and curb inflation had become more difficult with the looming federal election and both political parties wanted to win votes.

Labor productivity is a measure of a country’s standard of living because it can show how many workers are paid and how many products are produced, which in turn affects the cost of goods

Australia’s economy is still growing – but only just – although economists are not convinced the weaker-than-expected data will deliver the long-awaited interest rate cuts.

Full-year growth fell to 0.8 percent in September, down from one percent in June and below the consensus forecast of 1.1 percent.

Australian Bureau of Statistics head of national accounts Katherine Keenan said the country’s economy has grown for the twelfth quarter in a row but has been slowing since September 2023.

On a quarterly basis, the agency recorded a small improvement, with the economy growing 0.3 percent in the September quarter, compared with 0.2 percent in the three months to June.

Governments again made a major contribution to economic activity, with defense spending driving a significant increase in public investment of 5.3 percent this quarter.

Harry Murphy Cruise, head of China and Australia economics at Moody’s Analytics, said cost-of-living measures such as energy bill relief took up some of what would normally be considered household expenses and were put on the books of the governments ended up.

“That switcheroo, combined with tax cuts, freed up finances that could have been used for other goods and services,” he said Wednesday.

Australia’s economy grew by just 0.8 percent in the year to September

But households did not turn to spending, choosing instead to build savings buffers and pay down mortgages.

“That kept household spending steady throughout the September quarter and pushed the household savings rate to its highest level since late 2022,” Murphy Cruise said.

As the Reserve Bank of Australia tries to induce a slower economy to curb inflation by keeping interest rates high, the level of government spending has become a source of contention.

While some economists argue that government spending is keeping Australia out of recession, others warn it is adding to inflationary pressures and keeping interest rates higher for longer.