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Western Australia has joined the other AFL states in recession as Australia’s annual growth rate slowed to 2.5 per cent in the March quarter – a quarter that could be a turning point for the economy.

Wednesday’s national accounts confirmed that mining investment has handed over the baton of leading Australia’s economic growth. But whoever has it is not running very hard.

Over the past six months, Australia’s growth rate has slowed to an annualised 2.25 per cent, well below any estimate of trend growth. With the population growing by roughly 1.75 per cent, it implies little growth in living standards.

On the expenditure side, the main contributor to growth in the March quarter was the abrupt slump in imports of capital goods. By industry, our old friends in the finance sector enjoyed the biggest growth, as we saved more money for them to manage. And on the income side, the big contributor was the spike in minerals prices in the quarter, which saw a rebound in corporate profits.

None of those can be long-term drivers of growth. A substantial fall in the dollar, back into the range it inhabited between 1985 and 2005 (roughly between 50 and 90 US cents), is a precondition for Australia to make a successful baton change as mining investment fades. We’re not there yet.

WA: From boom to gloom

The most stunning data in the 48 tables published by the Bureau of Statistics is that for Western Australia. The state which dominated Australia’s growth in the mining boom is now experiencing the full force of the bust. In the March quarter alone, the Bureau estimates that after seasonal adjustment, investment in WA fell by more than $2 billion, slicing total spending in the state by 3.9 per cent.

Even on the Bureau’s preferred trend figures, total demand or spending in WA has fallen for the past two quarters. Victoria experienced a small rebound in seasonally adjusted government and consumer spending, but on the trend figures, its spending has fallen for the past three quarters. It’s the same story in South Australia, while in Tasmania, the trend level of spending has fallen for the past six quarters.

Australia’s growth is now coming from the State of Origin states and from exports. Whatever the result tonight, the Maroons are now leading the Blues in economic growth and have taken over from WA as Australia’s fastest-growing state.

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Keeping our wallets closed

Consumers remain cautious. Households saved 10.5 per cent of their disposable income in the year to March, while consumer spending grew just 2 per cent. In the three largest states, it grew 2.8 per cent in Queensland, 2.4 per cent in NSW. but just 0.8 per cent in Victoria – well below its population growth of 1.7 per cent.

Year on year, state final demand (total spending) grew 3.5 per cent in Queensland, and 2.1 in NSW. But it grew 0.02 per cent in WA, and slumped 0.65 per cent in Victoria, 2.5 per cent in SA and 4.9 per cent in Tasmania. Nationally, total spending rose just 1.1 per cent.

The two-speed economy has shifted location. The rugby states are now in the fast lane, the AFL states going backwards. No doubt some will blame it on James Hird.

What lifted Australia’s GDP was the growth in exports and decline in imports. The Bureau estimates that mining exports grew by 13 per cent year-on-year in the March quarter, adding $6 billion to Australia’s GDP. Most of that came from iron ore and other metals, while there was little growth in other areas. Rural exports rebounded 5 per cent off a low base, but exports of services grew just 0.25 per cent, and manufactured exports kept shrinking, down 4 per cent.

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The Bureau estimates that total hours worked rebounded in the March quarter, putting an end to the surge in productivity. But the most striking figure is that wage growth – that is, the total wages, salaries and fringe benefits of all Australian workers – rose just 2.7 per cent in the year to March, down from 7.7 per cent a year earlier.

Households hurting

If correct, that tells us the economy is suffering from widespread economic weakness that is biting household living standards much harder than the government’s glib rhetoric suggests. It is almost certainly a contributing factor to the animosity against the Gillard government, and another reason why consumers are not volunteering to lead the way with new spending.

The bottom line from all this is that the economy has dropped to third gear as mining investment turns the corner. No part of the engine so far is kicking in powerfully enough to drive us along the new road at the usual pace.

In the past five years, Australia’s growth has averaged just 2.5 per cent, less than 1 per cent per head. The most likely scenario for the next two years is that we keep up that pace, or something close to it, with unemployment continuing to drift up. But the risk of something worse is real.