For the second quarter this year, the Australian export sector drove GDP, offsetting weakness in government spending and the continuing crunching of the great resource investment boom. GDP grew a seasonally adjusted 0.9% in the three months to September, from the June quarter where growth was revised up to a 0.3% rate from the first reported 0.2%. First quarter GDP growth of 0.9%, boosted by a solid trade performance and strong domestic spending, was left unchanged.
The report from the Bureau of Statistics said the economy grew 2.5% in the year to September, up sharply from the sluggish 1.9% (revised down from the first reported 2.0% rate) in the year to June, thanks to the strong performance of exports, housing and household spending.
The national accounts are a further confirmation there won’t be any more interest rate cuts in Australia from the Reserve Bank, unless the Chinese economy slides into a recession and commodity prices plunge further than they have done in the past three months. But it is clear that for all the hennypennys and headless chickens in the commintariat, that the economy has not fallen in a heap and that the Reserve Bank’s stand has been the right win (and many of those rubbery Treasury forecasts are a bit firmer based).
What is quite stunning though is that the economy has withstood the twin effects of the sharp and continuing slide in our terms of trade (down another 2.4% in the September quarter), and the rapid slowing in the great resources investment boom (down 2.9% in the quarter) and an even larger slide in government investment.
The home building and property booms have helped offset this, rising domestic consumption by households (near record car sales for instance), of course the sharp fall in the value of the dollar (tempered by a rise since September though) has helped exporters offset price falls and helped boost exports of services, and weak to non-existent real wage growth and low inflation have helped employment grow more than expected.
"The largest contribution to economic growth this quarter was Exports of goods and services, up 4.6 per cent . This was concentrated in mining commodities, which is reflected by strong growth in Mining activity, bouncing back after a decline in the June quarter,” the ABS reported.
"Strength in the broader economy was also seen in Household final consumption expenditure increasing 0.7 per cent and New and used dwelling construction up 2.0 per cent.Gross fixed capital formation was the major reason for the weakness in the domestic economy. This is consistent with falling mining investment.Public gross fixed capital formation also fell 9.2 per cent for the quarter,” the ABS said in yesterday’s release.
GDP numbers show life in economy
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The ABS said that “The major contributions to economic growth this quarter came from Exports, with Net exports contributing 1.5 percentage points to GDP growth. The growth in Exports is reflected by strong growth in Mining activity (5.2%), bouncing back after the decline in the June quarter.
“These positive contributions were offset by a fall in Total gross fixed capital formation of 4.0%, driven by falls in private (-2.9%) and public (-9.2%) investment. The September quarter continues to see the decline in mining related construction, with Engineering construction decreasing 7.1%.
And despite the higher spending on houses, cars and household consumption in the quarter, the net savings rate rose to 9.1% from 8.6% in the June quarter. Overall the growth was broad-based and the economy is ending 2015 in a healthier state than it started.
Productivity improved, again with Gross Value Added per hour worked (which is a way of looking at market sector labour productivity, more or less) up 0.7% over the quarter, and 1.9% for the year to September. Employers are getting more from their employees, while wages are barely growing in real terms – in fact they are close to flatlining, or running a little under the inflation rate.
We will find out next week how volatile employment figures went in November, but they are also better placed than when we started the year. Today it’s the October trade figures, don’t be surprised at another big deficit, and the important retail sales data, also for October, is out tomorrow.
In a note issued yesterday afternoon, the AMP’s chief economist, Dr Shane Oliver wrote:
“…while recession has been avoided and this is likely to remain the case it’s important to recognise that the September quarter growth rebound is not likely to be repeated. The huge rise in export volumes is partly a correction to a sharp fall seen in the June quarter and likewise import volumes are unlikely to keep falling at the rate seen last quarter.
"In other words, the net exports contribution of 1.5 percentage points to growth seen in the September quarter is likely to be partly reversed in the current quarter. A better guide to growth is to average the last two quarters and this suggests that growth is currently running around 0.6% quarter on quarter or 2.4% annualised.
"The strong net export contribution masks continuing very weak demand in the economy. The risk for next year is that with mining investment still falling , demand could slow further as the contribution to growth from dwelling investment and wealth gains from rising home prices fades and as further bank mortgage rate hikes in response to increasing capital requirements cut into household spending power.
"Against this backdrop our assessment remains that the economy is likely to need more help from monetary easing next year, both from a lower Australian dollar and a further cut in interest rates by the RBA. So while the RBA is likely to be happy with the September quarter growth numbers, it’s likely to come under pressure (yet again) to ease further next year.”
Economists at the National Australia Bank were more relaxed, writing yesterday afternoon in part:
"Indeed, the detail was relatively encouraging and consistent with a gradual cyclical recovery across the non-mining economy. In particular, growth outcomes are broadening, consistent with business conditions reported in the NAB business survey. Industry data suggests services industries are benefiting the most, particularly ITC, real estate, finance & insurance, as well as health, public administration, while retail and hospitality are benefiting from a slightly less cautious consumer and net tourism inflows.
"Also noteworthy was the smaller-than-expected decline in business investment. While still substantive (-4.6% q/q), the decline was far less pronounced than indicated by last week’s capex figures, suggesting better outcomes for sectors such as education and health and/or stronger intangibles investment.
"Overall, today’s data is consistent with our forecasts for a gradual economic recovery in 2016 and 2017, although a weaker outlook for commodity prices may prompt some moderate revisions. Incoming information is also printing in line with the general thrust of the RBA’s forecasts, with GDP growth this quarter actually printing higher than its forecast in November.
“Global risks remain pronounced, and if anything have intensified in recent months given the slowdown in East Asia, while domestic data suggest greater resilience in the domestic economy."
