Australian economic growth remained safely on track in the three months to June, despite a slowing from the export-driven hectic first three months of the year.
Gross domestic product grew 0.5% quarter-on-quarter in the three months to June after the 1% growth in the first three months of the year (cut from the first reported 1.1%).
According to the Australian Bureau of Statistics, year-on-year growth was 3.3%, in line with expectations, and ahead of 3% in the first quarter (revised down from the originally-reported 3.1%).
The news knocked the dollar a touch lower after a solid early rise, while the ASX 200 rose early, then fell after the GDP figures came out, and then struggled higher late in the session to end of 0.2% for the ASX 200, to 5424.2 points.
The GDP data showed household and government spending, public investment and inventories drove growth in the quarter, while continuing falls in private investment and a weakening in next exports detracted from overall growth (the weakener exports was widely expected, especially after Tuesday’s balance of payments for the June 30 quarter.
The solid economic growth will spark questions about the necessity of further interest rate cut to stimulate the economy – that saw the Aussie dollar lose ground after the ABS data release at 11.30 am yesterday.
The Reserve Bank of Australia has cut twice this year, in May and in August, taking the cash rate to a record low of 1.5%, and while many economists have been betting the central bank will ease at least one more time either later this year or early 2017, the latest national accounts suggest there is no reason – Australia has solid, low inflation economic growth and looks like having it for a few more quarters yet.
Most economists had a quarter on quarter figure of 0.4% and annual growth of 3.2% to 3.3%. But the quarterly figure was upgraded with the better corporate profits, smaller negative from net exports and higher government spending.
As expected the trade account was the big difference between the March and June quarters.It detracted from 0.2% growth in the latest three months after the 1.2 percentage point contribution in the first quarter. Strong domestic consumption drove growth in the June quarter with domestic final demand up 0.6%, supported by solid household and public consumption.
GDP growth hits four-year high
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“Total investment was flat in the quarter, with the continued reduction in engineering construction associated with the mining sector offset by growth in public investment,” the ABS said.
"International trade detracted from growth in the quarter due to strong growth in imports and a slowing in the rate of growth in exports. After strong growth in the March quarter, production in the mining industry was lower in seasonally adjusted terms in the June quarter.”
The ABS said the terms of trade rose 2.3% in seasonally adjusted – the first increase since December quarter of 2013. “Compensation of employees rose by a modest 0.5 per cent in the June quarter to be 3.1 per cent higher through the year.
This the ABS said was in line with the modest through the year growth observed in hours worked (0.7%) and the Wage Price Index (2.1%) previously published by the ABS.
That 2.1% growth rate is the best productivity performance for seven years and a faster rate than the 1.7 average in the 24 years to 2015. The improvement is the impact of mining output from new projects coming on stream, especially in iron ore and LNG. These producing facilities need fewer employees than in their construction phases.
The improvement in our terms of trade had a positive impact on national income. In fact the rise in the terms for the first time in two and a half years and added to income growth for the first time in roughly the same period.
Real gross domestic income rising 0.9% quarter on quarter and real net national disposable income rising 0.6% quarter on quarter and 2.3% over the year.
Nominal GDP was even stronger at 1.3% quarter on quarter and 3.4% year on year. The household saving ratio was a high 8.0% in seasonally adjusted terms in the June quarter 2016, up from 7.5% at the end of 2015.
