Australia is heading for a sharp contraction in economic growth when the March quarter national accounts are released later this morning, thanks to the impact of the Queensland floods, especially those in the state’s export coal fields.
In fact the slump in the current account will provide the biggest hit to growth seen in the more than half a century that the trade figures have been compiled and reported in their present form.
But they while they will be statistically significant, in actual terms of showing what is happening in the overall economy, they will be all but irrelevant.
This is a cut to the supply side of the economy and the export economy at that. External demand from the likes of China remains strong, the question for the domestic economy is how is demand going.
Figures released yesterday for the March quarter’s current account were much weaker than expected and forced economists to lift their forecasts of the fall in GDP from the around 0.4% to closer to 1% or more.
Some economists now reckon the economy could contract by 1.5% or more, after the 0.7% rise in the December quarter and the 0.2% rise in the three months to September.
The current account deficit, seasonally adjusted, rose 29%, or $2.356 billion, to $10.447 billion in the March quarter.
That was up from the upwardly revised deficit in the December quarter of $8.01 billion.
The trade surplus more than halved (or by $3,336 billion) to $3,030 billion. The primary income deficit fell $935 million (7%) to $13.229 billion.
The Australian Bureau of Statistics said that in seasonally adjusted chain volume terms, the current account deficit (the measure used to gauge the impact of trade on the domestic economy) rose a massive $7.781 billion to $9.089 billion in the March quarter 2011.
Export volumes fell 8.7% in the March quarter, the biggest quarterly fall in 37 years, and were driven by a 13.6% drop in non-rural commodity exports, specifically coal and iron ore.
The natural disasters caused major disruptions to Queensland’s coal industry, with mining operations and infrastructure operating well below capacity during the quarter.
This resulted in coal, coke and briquette exports falling by $4.6 billion or 26.8% in the quarter.
Cyclones and heavy rainfall in north Western Australia in early 2011 also impacted on iron ore production, with metal ores and minerals exports down $1.3 billion or 7.7% in the quarter.
Exports fell by 8.7% in the quarter, driven by the drop in shipments of coking and thermal coals from Queensland.
Imports were up 1.3% (modest, but due to the rising cost of oil and associated products).
As a result, the implied widening of the gap between spending and production means foreign trade will strip 2.4 percentage points from GDP growth in the quarter, the biggest one-quarter hit to growth from trade in the 52-year history of the national accounts, according to the ABS.
That is far more than anyone had expected.
With retail sales making no contribution in the quarter, construction down and company profits down 2%, the GDP figures are going to be poor.
Business investment was higher than forecast, and yesterday government spending figures were positive, with total spending including consumption and capital investment rising by 0.8% in the quarter, in seasonally adjusted volume (inflation-adjusted) terms.
With government spending accounting for around a quarter of GDP, that will add about a fifth of a percentage point to GDP growth, and could be one of the few positives.
But that small addition to growth will be swamped by the slump in coal exports revealed in yesterday’s figures.
But there was good news.
The terms of trade increased 5.8% in the quarter, to be 22.4% higher through the year.
Export and import prices rose 6.5% and 0.6% respectively in the quarter.
The rise in export prices reflected increases across all major export categories with commodity prices in particular recording large increases.
The terms of trade are now at their highest level since 1950-51.
Meanwhile a fall in business lending has seen no growth in private credit figures for April, released yesterday by the Reserve Bank.
The RBA said that credit growth was flat after the 0.6% rise in March.
Over the year to April, total credit rose 3.3%, down slightly from the annual rate in March of 3.5%.
Business lending fell 0.6% in April, after rising by a solid 1.1% in March and surprising the market.
Over the year to April, business lending fell 1.1%, against the 0.7% fall in the year to March.
Lending to housing was steady, rising 0.4% in April. Lending to investors was down a touch.
That saw housing credit rise 6.4% in the year to April, against 6.5% the month before.
Other personal credit was also weaker, falling 0.3% in April, after rising by 0.7% over March.
Over the year to April, other personal credit increased by 0.5%, down from the 1% annual rate in March.
The NAB said last night in a special note:
“Although the special NAB flood survey in late January pointed to a large negative impact on national GDP, the likely scale of tomorrow’s estimate will be much larger than even we had anticipated.
As a result, NAB has revised its forecast for March quarter GDP growth to -1¼% (previously -¼
