What weakness in the supply side? 2023-24 Annual national accounts

By Pat Bustamante Senior Economist, Westpac

The economy grew by 1.4% in year average terms over 2023-24, broadly in line with the initial estimate from the quarterly national accounts (+1.5%). Economic growth was revised higher (+0.3ppts) to 3.4% in 2022-23.

What weakness in the supply side? 2023-24 Annual national accounts

One of the main takeaways from the Annual National Accounts seems to be that the supply side has largely healed, pointing to easing future cost pressures. While employment growth has been solid and the labour market remains tighter than average, this largely reflects the growing working age population and the unprecedented expansion in public demand.


As public demand transitions to a new record share of the economy, measured productivity growth will be soft. There is no doubt about it. We estimate that by the end of 2024-25, measured productivity will be around 2.1ppts lower because of this expansion in public demand. But as our scenario showed this reflects “base effects” as a larger share of workers are engaged in the non-market sector. It does not reflect underlying problems with our supply side. The Annuals clearly show the adverse supply side impacts resulting from the pandemic have largely faded.

As this expansion plateaus, the impact on ongoing or trend productivity growth, which is what is important for ongoing inflationary pressures, will be small (we estimate it will be around 0.1ppts per year).

Should policy makers see the unprecedented expansion in public demand as a cyclical upswing as opposed to structural change, they could conclude that the aggregate supply curve has “shifted to the left”. If anything, the Annuals showed that the supply curve “has shifted to the right”, but it has been masked by this transition. Given the greater than usual uncertainty, the RBA’s wait and see approach will likely keep the RBA Board on the sidelines to early next year.  

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