THE Organisation for Economic Cooperation and Development (OECD) said real household income per capita, which provides a better picture of people’s economic well-being than Gross Domestic Product (GDP), fell by 1.4 per cent in the OECD area in the fourth quarter (Q4) of 2020. This decline occurred despite a continued rise in real GDP per capita for the OECD area by 1 per cent, following the sharp increase by 9.2 per cent recorded in the previous quarter.

Cumulatively however, since 2019 Q4, real household income per capita increased by 2 per cent in the OECD area, while real GDP per capita declined by 3.4 per cent.

Overall, the decline of 1.4 per cent is the largest quarterly decline in real household income per capita since 2013 Q1 and reflects many governments across OECD countries reducing the level of COVID-19 related transfer payments to households, after the unprecedented levels of support provided earlier in 2020.

The United States and Canada continued to record falls in real household income per capita by -2.5 per cent and -1.4 per cent respectively, which followed strong declines in the previous quarter. This decline was despite both countries recording increases in real GDP per capita of 0.9 per cent and 2.3 per cent respectively.

It should be noted that the US recently enacted a second and third round of fiscal stimulus. The current estimate of household income does not reflect any payments associated with these policies. However, they are expected to have a significant impact on both household income for the US and the entire OECD area in 2021 Q1.

Among the major seven economies, falls in household income were also recorded in Italy (-1.9 per cent) and Germany (-0.4 per cent), following strong increases in the previous quarter.

Across other OECD countries, household income per capita fell in Australia (-3.6 per cent), Chile (-8.8 per cent), Denmark (-3.8 per cent), Greece (-1.9 per cent) and Spain (-2.5 per cent).

Conversely, within the major seven economies, France and the UK recorded positive growth in household income per capita in the fourth quarter, of 1.4 per cent and 0.5 per cent respectively, reflecting the quarterly variances across countries of the timing, duration and intensity of government policies in respect to Covid.

To remove some of the volatility, the cumulative growth of the measures sees all G7 economies recording stronger growth in real household income per capita than real GDP per capita over the past four quarters, similar to the OECD area.

During 2020, the largest difference between the two indicators was observed in Canada, where growth in household income outpaced GDP growth by 9.7 percentage points, followed by the United Kingdom (7.1 percentage points), and the United States and France (both at 6.3 percentage points).

On a cumulative basis, over the course of 2020, real household income per capita outpaced growth in real GDP per capita in all reporting OECD countries, with the exception of Denmark where cumulative household income per capita fell by -3.8 per cent compared to the decline in real GDP per capita of -1.7 per cent.