Fairytale debate turns to GDP reality

After a political debate that could have been written by the Brothers Grimm, next week will bring the grim reality of how the economy is actually performing.

The tax reform "conversation" has sunk into a slanging match with childhood references to unicorns, fairies, pixies and fantasy lands.

Less colourful, but economically more meaningful, will be the rollout of the national accounts, gross domestic product and balance of payments over the next few days.

Economic growth figures for the December 2015 quarter on Wednesday will provide comprehensive details of Australia's standing after two full years of the Abbott-Turnbull government.

And it's not looking particularly pretty. More beast than beauty.

Far from the pot of gold promised by Tony Abbott and Joe Hockey when the coalition was swept to power in 2013, the economy has been stuck with an annual growth rate of around 2.5 per cent.

That's well below what has long been assumed as the nation's trend rate of 3.2 per cent.

Treasury and the Reserve Bank have recently trimmed the potential growth rate to 2.75 per cent, but even that looks a stretch.

"The Australian economy is neither here nor there - it's not bad enough to fall into recession, nor is it shooting the lights out in terms of output or profitability," KPMG chief economist Brendan Rynne says.

In the group's quarterly economic outlook, he says with the economy operating below its potential, unemployment will remain "sticky" at around six per cent and the financial outlook for government is less than rosy.

Figures out this week showed the huge impact the end of the mining investment boom is still having on the economy with engineering construction work remaining in a slump as major projects are completed.

Business investment showed a modest increase in the final three months of 2015, but remains more than 16 per cent down on the year, and initial estimates suggest that capital expenditure will be equally weak in the next financial year.

Wages growth is running at its slowest in nearly two decades, keeping only just ahead of a benign inflation rate of 1.7 per cent.

All this hasn't gone unnoticed by voters.

The latest Essential Research survey found 55 per cent of respondents believe the economy is in a worse state than it was 12 months ago.

More than half say job security and unemployment has worsened, while almost three quarters say the cost of living is higher than a year ago.

Hardly the perceptions to generate a spending spree.

Even so, consumer confidence has held up reasonably well after a few wobbles at the start of the year, though ANZ chief economist Warren Hogan believes we could be seeing the calm before the storm.

"Discussions around tax reform and spending cuts are likely to intensify ahead of the May budget and could weigh on sentiment in the coming months," he says.

And then there is speculation the budget could be quickly followed by an election announcement, something that has voters groaning rather than shopping.

Still, Australia is doing a lot better than many countries in an uncertain global economy after being recession-free for a quarter-century.

It may just not feel like a wonderland at times.