What do your neighbour Xin, a mining company in Western Australia and your beautician Sally have in common?
Well, they’re all part of the economy.
All the things they buy, taxes they pay, jobs they work in or create are all part of Australia’s gross domestic product (GDP) figures.
You’ve probably heard the economy’s not going so well right now, and new GDP figures have confirmed the economy has shrunk by 0.3 per cent over the first three months of 2020.
That’s because of the impact of January’s horrific bushfires, drought and the early stages of the coronavirus.
But what do the GDP numbers mean for you?
Here’s what you need to know.
Hang on. What even is GDP?
GDP just means the total value of all the goods and services Australia produces.
“It gives us lots and lots of meaty information when you drill down into all the nerdy numbers about how our economy is functioning and what’s working well and what needs help,” explained Nicki Hutley, an economist with Deloitte Access Economics.
She says sectors like tourism, retail and hospitality have really struggled this year.
Kate Mather runs South Coast Experiences, a tourist operation in New South Wales, which was hit by fires and then travel bans due to coronavirus.
Her revenue dropped to nothing.
“It was pretty much a stop. It stopped with the fires and never really picked up,” Kate said.
She’s changed her business model to create an online shop for local artisans, but it isn’t making much money so she’s been living off her savings.
“Luckily I had a bit of a reserve I could use my savings. There was an opportunity to join JobKeeper but I still haven’t received that yet,” she said.
Kate’s story is replicated thousands of times over as small businesses have lost revenue – and that feeds directly into the GDP figures.
“We’re all a cog in that giant machine and it’s telling us not only how the giant machine is doing but how we individually are doing and, more importantly, what the prospects for us are,” Ms Hutley said.
Are we in a recession yet?
Technically, not yet.
“If the growth is negative in two consecutive quarters, we say the economy is in recession,” said Mala Raghavan, an economist with the University of Tasmania.
And economists say because the first quarter growth rates are negative it’s inevitable we’ll officially be in a recession soon, because the full impacts of the COVID-19 shutdown will almost certainly mean a plunge in the June quarter figures.
But how does it affect me?
Well, it’s a sign of the living standards in our society.
“It’s telling us what does the national pie look like, how much money is there, how well are we doing and what does that mean for how much governments can do in the future,” Ms Hutley said.
“If the pie is growing, there’s more money to go around, but if it’s shrinking, the government is receiving less in taxation revenue.”
She says we can’t improve living standards without economic growth.
“The government will have to make some tough decisions and that affects everybody. It might be around taxation, it might be around education or health spending, there are lots of ways there’s an interaction there. There are lots of little ways how we as individuals are affected by the economy,” she said.
She says people should use the economic data to influence their big life decisions.
“Is it a good time to think about getting a new job, buying a house or increasing my mortgage? How healthy is the economy?” she said.
“That is the key to big decisions we make day in, day out. You should never make those decisions without understanding where the economy is in one quarter and what direction it’s heading in.”
And it can affect your career
When the economy is shrinking, there are fewer jobs to go around.
About 600,000 people lost their jobs in April alone.
“This is what we call an employer’s market,” Mala Raghavan said.
“If Australia’s doing well, the economy is expanding: when we produce more goods and services, more jobs are going to be available.”
So, if you’re looking to change jobs, get a promotion or move into a different industry, it might be tough.
“You can look through those national accounts and see in the GDP figures which sectors are doing better than others,” Ms Hutley said.
But it’s not all doom and gloom. While some areas, like hospitality and retail, have been hit hard, others, like the health care sector and supermarkets, have been doing well.
So I shouldn’t bank on a pay rise anytime soon?
Again, it depends on the sector you’re working in (and what union agreement you have).
But it may be hard to convince your employer when there’s a line of other people outside willing to do your job.
“If the economy is going backwards, it’s very hard to justify a wage increase. When the economy’s weak and unemployment is threatening, the last thing employers are going to do on the whole is give people wage rises,” Ms Hutley said.
I’m a stay-at-home mum, does my work count towards GDP?
No, unfortunately, it doesn’t.
GDP has been criticised as a measurement because it doesn’t include any unpaid work like bringing up children or volunteering — or even what the environment is worth.
It also tells you about the past, not what’s happening currently.
If you’re interested in broadening your economic reading, you can also look out for retail sales, consumer confidence, the unemployment rate or any of the releases from the Australian Bureau of Statistics.
“It’s a very limited set of data,” Ms Hutley said.
“We need to put those numbers together with lots of other things that are happening more recently to give us an indication of where the economy is headed.”
“It does give us a starting point of references. It’s an important part of the puzzle — we can’t do without it.”
DISCLAIMER: This is general advice only. If you need individual advice, please see a professional.