If it hadn’t been for the looming crisis in Europe, there wouldn’t have been interest rate cuts last month and this month from the Reserve Bank after the release of figures yesterday showing a solid rise in third quarter economic growth.
September quarter national accounts data from the Australian Bureau of Statistics, yesterday showed the economy grew 1% from the June quarter, which in turn saw an upgrading of its growth rate to 1.4% from the previous 1.2%.
First quarter growth remained unchanged at the previously reported contraction of 0.9%, courtesy of the Queensland floods and their impact on the coal industry.
For the year to September, the economy grew 2.5% from the same quarter of 2010, but looked at another way, the economy is now growing at an annual rate of 5% or more (2.4% over the second and third quarters or 4.8% for the year), seasonally adjusted.
In Australian historical terms, that’s a boom.
And without the big fall in inventories of 0.8% (compared with a rise in the June quarter) growth would have been closer to 2% for the quarter.
And at that level or at the 1% reported rate for the quarter, there’s no need for any more interest rate cuts from the Reserve Bank.
Thanks to the resources boom, the economy has now a real head of steam.
So the question of more rate cuts in 2012 is moot: they just won’t happen if the Reserve Bank thinks Europe is muddling through.
Growth in the quarter in Western Australia jumped 8.4%, according to one measure from the ABS (and more than 16% in the year) because of the resources boom.
In Queensland, final state demand jumped more than 9% thanks to spending on coal and LNG projects and rebuilding after the floods and cyclone Yasi.
It was much slower in other states, but that measure doesn’t pick up how growth from one state spills over into other states.
The growth for the quarter was driven by a 1.5% contribution to growth from capital expenditure on non-dwelling construction, and 0.4% contribution from final consumption expenditure, and 0.4% contribution from capital expenditure on machinery and equipment.
The increases were partially offset by an -0.8 percentage points contribution from changes in inventories, and -0.6% contribution from net exports.
And we are swimming in income with the ABS saying that in the September quarter, seasonally adjusted real net national disposable income increased 1.9%. "Growth over the past 4 quarters was 6% compared with 2.5% for GDP," the ABS said.
That is further evidence of the boom and while much of that income is going to mining companies and foreign shareholders, more is staying here in Australia.
And without the eurozone woes, which have seen the RBA cut rates by 0.25 last month and yesterday, we would be facing speculation today of a rate rise.
In fact it is only the recent weakening in inflationary pressures that would have justified the RBA not moving rates either last month and this month, had Europe not been remaking a movie about the sinking of the Titanic.
Growth in the US was 0.5% quarter on quarter and 2% annual, so we are still doing a lot better than other developed economies (see table below).
Consumption was solid, up 1.2% in the quarter and 3.8% over the year.
Car buyers, consumers and miners helped drive growth and manufacturing was also strong (remember the data on rising manufacturing investment we highlighted last week, not falling, as some alarmists would have us believe).
"The main contributors to growth in Household final consumption were Purchase of vehicles (0.2 percentage points), Recreation and culture (0.2 percentage points) and Hotels, cafes and restaurants (0.2 percentage points)," the ABS said, meaning consumption was very solid in the quarter.
Their contributions helped offset the expected negative contributions from a fall in inventories (a rather large 0.8% from GDP); net exports (a negative 0.6%).
The ABS said non-farm GDP both increased by 1.1% in the September quarter. The Terms of trade rose 2.7% and real gross domestic income rose 1.6% and the savings rate remained at a very high 10.1%.
Government final consumption expenditure fell 1.2% in seasonally adjusted terms (that will be repeated in the next few quarters as government spending cuts bite).
The ABS said that the industries that drove growth in the September quarter were construction with 0.4% contribution to growth, and mining with 0.3% contribution to growth.
"In seasonally adjusted terms, the main contributors to GDP were Construction (up 5.0%) and Mining (up 3.7%). Construction contributed 0.4 percentage points to the increase in GDP, while Mining contributed 0.3 percentage points.
"On the expenditure side, the increase this quarter (in seasonally adjusted volume terms) was driven by Private gross fixed capital formation (adding 2.1 percentage points) and Household final consumption expenditure (adding 0.7 percentage points).
"Partially offsetting these rises were Changes in Inventories (detracting 0.8 percentage points), Net exports (detracting 0.6 percentage points) and Public gross fixed capital formation (detracting 0.4 percentage points).
"Real gross domestic income. In seasonally adjusted terms, during the September quarter, Real gross do
