Congratulations, Australia! But… hang on a minute…

Source: Bloomberg, Robeco

Though I didn’t hear any bottles of champagne cracking open, earlier this week when the Australian GDP figures were published, a record was actually broken. Australia’s economy has been expanding for 103 quarters running and that’s just one quarter shy of 26 years. In fact, it’s already been 26 years, as an expansion is only officially considered over when the GDP has fallen for two quarters straight. So even if it drops in the second quarter (which can’t be completely ruled out), that won’t be enough to say the economy has stopped expanding. Twenty-six years is quite impressive: if the US managed it, there would be no recession there until 2035!

Unfortunately, the US is unlikely to achieve such a miracle. Don’t forget that Australia has a small, open economy and owes its explosive growth to the right combination of internal and external factors. As a key producer of raw materials, Australia has taken full advantage of robust growth in Asia, while the last 26 years of steady immigration have provided the domestic economy with a considerable boost. During that period, Australia’s population grew from 17 million to its current size of 24 million, representing an average annual increase of 1.3%. And a larger population means higher rates of consumption, housing construction and growth, too. As long as Trump is in office, the US doesn’t seem likely to opt for this growth ‘model’.

So if it’s a record, who broke it before Australia? That was another small, open economy. As one of the key producers of natural gas, it took full advantage of the sharp rise in oil prices occurring in the 1980s and 90s. You guessed it. The Netherlands. From 1982 to 2008, the Netherlands, like Australia, also managed to buck recession for 103 quarters straight, thanks to growing international trade, gas revenues and, let’s be honest, the economy’s relatively dynamic nature.

Is that true?

Well, that’s at least what I’ve read and with some regularity. However, the problem is that if I go on the Statistics Netherlands website, I can’t find quarterly data anywhere that goes back to 1982. I find figures from 1996 onward. What the numbers were before that, is anyone’s guess. Since a recession is normally defined as two successive quarters of negative growth, it’s a bit hard say whether the Dutch economy was or was not expanding for 103 quarters in a row.

After finding a series of quarterly GDP figures going back to 1960 on the OECD website, I thought − albeit briefly − that I had solved the mystery. Mind you, the OECD has conscientiously added a disclaimer that pre-1996 figures were ‘estimated values’. That of course makes them less official. But it didn’t stop me from getting excited. Indeed, according to them, the Dutch economy did, in fact, experience steady growth from 1981 to 2007. Here’s what the graph showing Dutch economic growth looked like:

The Dutch economy actually expanded for longer…

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Source: OECD, Robeco

Remarkably, the OECD data reveals that the expansion phase didn’t continue for 103, but for 108 quarters in a row! But even that claim is arguable. In the second quarter of 1981, GDP fell by a marginal 0.03%, so it was less than a tenth of a percentage point lower than the previous quarter. That meant that in 1981, the Dutch economy was officially in a recession. Now you could say, the definition is what it is, but since we’re talking about ‘estimated values’, this decline could easily be due to statistical noise. Disregarding that one quarter, it turns out that the economy was expanding for even longer: 112 quarters.

I’d be the first to admit that none of this is all that important. But declaring an economy to be in recession after two successive months of negative growth is fairly arbitrary and a lot depends upon how precisely GDP is measured: the available data is far from reliable. It might be more interesting to find out which economy demonstrated the strongest growth during the period of expansion. It’s pretty clear which one it was: With average annual growth of 3.2%, Australia was the strongest performer. In the Netherlands, the economy grew by about 2.6%. Again, there’s a catch, however, because we know that in Australia, one of the driving forces behind economic growth was immigration. The graph below shows the changes in per capita GDP during both periods of expansion:

When it comes to per capita GDP growth, the Netherlands wins hands down

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Source: IMF, Robeco

There you have it. Sorry, Australia. Of course, we don’t mind if you break the record. But it looks like you’ll just have to wait a bit longer. Get back to us in a year or two. ☺

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