The National Accounts on Wednesday did not, and never do, break out how much of the GDP was due to China, but it’s a lot. What with resources exports, education and tourism as our three main exports, Australia rather depends on the autocracy to our north.
(And by the way, it is now officially an autocracy, no longer the oligarchy it was – by removing term limits on the Presidency, it has gone from rule by an elite, the Communist Party, tom rule by one man, Xi Jinping, an autocrat.)
Last August our annual exports to China went past $100 billion and China became the number one source of tourists. It is also the number source of students.
In his commentary on the National Accounts this week, Stephen Walters, chief economist of the Australian Institute of Company Directors, said: “we have run out of booms”.
“Absent another boom – and it’s not clear what the genesis of that will be – the next phase of our growth probably will be sourced from much-harder-won gains in productivity growth. These gains usually stem from sustained reform, which has been largely absent of late”.
The good news is that consumer spending rose 1% in the December quarter and contributed 0.6 percentage points to the quarter growth figure of 0.4%.
Net exports actually detracted 0.5% from growth, so in the December quarter at least the autocracy to our north wasn’t all that important. But that’s temporary: LNG exports are ramping up and education and tourism continue to grow.
Business investment was also a negative, offset by Government spending on infrastructure, which has finally lifted to meet the demands of growing population.
And population growth is the main driver of Australia’s economy: real GDP growth in 2017 was 2.4%; per capita GDP grew 0.8%. Thus, two-thirds of the economic expansion simply arose from having about 350,000 more people, spending, consuming and requiring shelter.
To be honest I think growth of roughly 2.5% is fine. Much more than that and you end up with booms and busts, winners and losers, joy and misery; but mediocrity just trundles along, which means we can all get on with our lives and pick good companies to invest in rather than hope to pick the top of a market cycle.
There’s no reason to suppose we’re heading for a recession, and if things did slow down markedly this year, the RBA would cut rates again.
But things won’t slow down: resource exports, led by LNG, plus government investment will underpin GDP for years to come. The only danger of a recession is from panic selling of real estate leading to a financial crisis, and with immigration of 200,000 a year supporting housing demand that’s very unlikely to happen.
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