The Australian economy has once again confounded everyone, growing faster than forecast for the second quarter in a row.
Up by 0.6% for the three months to June as consumers spent their cash splash money and the tax incentives for small and medium business to invest helped maintain solid investment levels.
That means we had growth in the first half of the year of around 1%, whereas many economists would have thought that would have been impossible earlier in the year.
It meant that we now have had positive growth for 18 years in row, since the last recession in the early 1990’s.
No other major economy can boast of that achievement.
That gave growth for 2008-09 of 0.6%, meaning that Australia has ‘dodged the bullet’ of recession, even though the December quarter was negative.
It was double the market forecast of a 0.3% growth rate.
Australia joins China, South Korea, France, Germany, Japan and more than a dozen other economies in experiencing positive second quarter growth.
But only China, South Korea and Australia managed to have positive growth for the first quarter and for the first six months of the year among the major economies around the globe.
The G7 economies contracted by an average of 4.6% in the year to the June quarter, with the US, UK and Japan recently experiencing their biggest yearly falls in output in 50 years.
The federal government said the National Accounts confirm that the economic stimulus continues to play "a vital role in supporting growth and jobs in the Australian economy."
"Treasury estimates that without the Government’s economic stimulus, the economy would have contracted for its third consecutive quarter, with GDP falling by 1.3 per cent over the year to the June quarter."
The rise in growth was much more than the 0.2% forecasts from market economists, which had been wound back after worse than expected profits, stocks and current account figures for the quarter were released on Monday and Tuesday.
The growth figures put an interest rate rise back on track, but as to when, who knows?
(See the next story for two well-argued conflicting opinions.)
Investment and construction spending was strong, imports made more of a ‘negative impact’ than did the positive impact from exports.
Household consumption rose 0.8% in the quarter, adding 0.5 percentage points to overall growth. Exports rose 1% and added 0.2 percentage points to GDP.
New machinery and equipment also contributed 0.5 percentage points to the GDP as the tax incentives for investment for small and medium companies helped trigger higher demand.
But sluggish new building construction clipped 0.3 percentage points from GDP, seasonally adjusted, while imports, reflected lower contract prices for iron ore and coal, deducted 0.5 percentage points.
But all this confirmed what RBA Governor Glenn Stevens said in his post meeting statement on Tuesday when he wrote:
”Economic conditions in Australia have been stronger than expected, with consumer spending, exports and business investment notable for their resilience.”
Besides the strong rise in household consumption, government consumption was just as strong, as the Australian Bureau of Statistics said:
"Government final consumption expenditure and Household final consumption expenditure both increased 0.8% in seasonally adjusted terms.
"The main contributors to growth in Household final consumption were Food (up 1.1%) and Furnishings and household equipment (up 1.9%). The sole negative contributor was Electricity, gas and other fuel (down 0.7%)."
A surprise was the strong performance in the non-farm economy: the ABS said that non-farm GDP grew 1.1%; the Terms of Trade fell 7.4% (thanks to the sharp fall in coal and iron ore contract prices) and as a result Real gross domestic income fell 1.1%.
"In seasonally adjusted terms, the main positive contributors to expenditure on GDP were New machinery and equipment (0.5 percentage points) and Household final consumption expenditure (0.5 percentage points).
"The largest negative contributors were New building construction (-0.3 percentage points) and Imports (-0.5 percentage points), " the ABS reported.
In industry terms (seasonally adjusted) the ABS said property and business services contributed 0.4 percentage points to GDP growth, while agriculture, forestry and fishing detracted 0.4 percentage points.
Non-residential building activity fell sharply in the quarter, offsetting a rise in new engineering construction. However, overall new business investment rose by 2% in the quarter, with machinery and equipment investment boosted by the Small Business and General Business Tax Break.
The weakness in private investment continues to underscore the importance of the stimulus packages from the federal government. The initial stages of the government’s investment stimulus contributed to a 0.8% rise in public investment in the quarter.
Dwelling investment declined in the quarter, falling by 5.5%, but the first home owners’ scheme will see that reversed in coming months.
The weak global economy is continuing to have a substantial impact on Australia’s export sector.
Export volumes increased by 1% in the quarter, supported by increased demand from China, but p
