Just to make it clear there won’t be an interest rate rise in Australia this year and probably most if not all of 2020 as well – especially not after the second weak quarter of economic growth in a row.
The December quarter national accounts from the Australian Bureau of Statistics yesterday revealed that GDP grew by just 0.2%, down from an unchanged 0.3% in the three months to September.
That gave an annual growth rate of 2.3%, missing forecasts of 2.5% and the RBA estimate last month of 2.75% in its first Statement Of Monetary policy for the year.
It was also weaker than the unchanged 2.8% in the year to September and 3.1% for the year to June.
The economy slowed sharply in the second half from a 3.8% annual rate in the first half to just 0.9% in the six months to December.
While a few economists noted (trumpeted even) the fact that GDP per head turned negative for the second quarter in a row, the ABS’s preferred measure of income growth showed a strong rise
Economic growth per person fell by 0.1% in September and 0.2% in December, the first time two consecutive quarters have recorded negative growth since 2006.
But the Bureau’s preferred measure of living standards, real net national disposable income per capita rose 1.4% over the year as wages growth lagged and strong jobs growth boosted the aggregate measure of Compensation of Employees by 0.9% in the quarter and 4.3% over the year.
The high annual rate was because the labour force grew by around 2.2% over the year, so growth in Compensation of Employees was around 2% over 2018, slower than the 2.3% rise in the Wage Price Index and 2.4% for Average weekly earnings.
Compensation per employee rose 0.5% in the quarter which is very weak like the Wage price Index and Average Weekly Earnings.
Nominal GDP (which is essentially the tax base as it is GDP at current prices) jumped a solid 5.5% (up from 5.5% in the September quarter), indicating that for all the angst about weak growth, federal government tax revenues will continue to be solid. Nominal GDP rose a solid 1.2% in the three months to December.
Reserve Bank governor Philip Lowe spoke before the GDP figures were released yesterday and had he spoken after the 11.30 am release of the accounts, his comments could have been even more clearer.
As it is he made it clear there was little if any prospect of a rate rise this year “It’s hard to think of a scenario where interest rates would need to go up this year,” he said at a conference in Sydney.
“The inflation pressures are very benign, wage growth remains low and the current rate of wage growth is unlikely to generate an inflation rate of 2.5 percent,” he said. “Other factors are weighing on inflation too.”
“Governments are responding to the cost of living pressures people feel by and reducing the prices of the services that they deliver, reducing the rate of increase.
“There are quite a lot of things weighing on the rate of inflation at the moment so I think it’s quite unlikely that inflation is going to be a problem any time soon. And if it’s not, then we can keep with the current setting of monetary policy for some time,” Dr Lowe told his Sydney audience.
“Growth in the economy was subdued, reflecting soft household spending and a decline in dwelling investment. The approvals for dwelling construction indicate that the decline in dwelling investment will continue,” said Bruce Hockman, Chief Economist at the ABS said in yesterday’s statement from the Bureau.
The ABS said household spending grew by 0.4% over the quarter, “reflecting a continuation of modest spending in recent quarters”.
The soft results of final two quarter of 2018 were due to a combination of the downturn in housing (with dwelling investment down sharply), slow income growth lacklustre consumer spending (household consumption) and the dying embers of the great mining investment boom.
Growth was supported by a solid contribution from underlying public demand, driven by ongoing growth in government consumption – likely NDIS related; government investment fell in the quarter.
The farm sector continued to show weakness, again falling in the quarter from the predictable effects of the drought.
And the household savings ratio edged up to 2.5% from 2.4% in the previous quarter.
