The economy is in a much better position than may people understand – their thinking is still conditioned by the weak data from the third quarter of last year when GDP fell 0.5% and continuing sub par jobs figures.
GDP figures are based on volumes, so the actual impact of the trade account in the final quarter will be better than the third quarter, but not as much as the income figures would suggest.
That impact will start showing up in other parts of the national accounts as the year goes on.
For the Federal government this is good news, but the weak inflation figures confirm that nominal GDP growth will again be slow in the December quarter.
The government will be hoping the rise in national income from the surge in terms of trade will translate to faster nominal GDP growth and therefore higher tax income.
Australia is facing a massive boost to national income in the December quarter after our terms of trade (which is export prices over import prices) after our terms of trade leapt 12.2% in the final three months of the year.
That was almost three times the 4.5% jump in the September quarter which saw real net national disposable income rise 0.8%, up from a 0.5% rise in June quarter 2016.
December’s surge in the terms of trade was the largest gain in six and a half years and the third-biggest quarterly increase since records began being kept by the Bureau of Statistics.
Export prices rose 12.4% in the quarter, while import prices were up just 0.2%, according to the ABS trade price indices.
Boosting export prices were boosted by coal, iron ore, gas, metals, sugars and fuel, while there was widespread weakness in import prices with only fuel prices rising modestly (they will rise sharply this quarter).
The terms of trade will ease this quarter as coal (hard coking coal prices down 40% in the past two months) and some other commodity prices have come off the boil. But it won’t be by much as iron ore, oil and gas prices, gains and beef prices remain high.
Trade data for December and 2016 will be out from the ABS on Thursday and the Reserve Bank releases its January Commodity Price Index on later today (Wednesday)
