Australia's economic growth for the June quarter of 2022-23 could have been significantly stronger were it not for a sharp depletion of business inventories, particularly in the major mining and rural export sectors.
Iron ore, coal, and other mining companies, as well as grain companies like GrainCorp, drew down on their stockpiles to fulfill contracts and one-off sales demands in the quarter. They aimed to prevent any lasting impacts from the shortfalls caused by La Niña earlier in the financial year.
An analysis of the national accounts for the June quarter reveals that the steep decline in business inventories during the final three months of the financial year had a dampening effect on GDP.
The Australian Bureau of Statistics identified the drop in inventories as a significant factor affecting growth in the final quarter, impacting various sectors such as mining, automotive, white goods, grain, and other products delayed by supply chain issues.
"Inventories changes were the primary contributor to the decline in GDP growth. This quarter saw a $3.4 billion reduction in inventories, partly offset by increased exports (which contributed positively to GDP)."
"Wholesale trade inventories decreased as grain inventories were exported following recent harvests. Additionally, the clearance of quarantine backlogs for motor vehicles and other equipment contributed to the decline, resulting in deliveries to households and businesses this quarter."
"Mining inventories were depleted to support exports due to production disruptions in certain commodities."
While some of the inventory reduction will be replenished in the coming quarters, contributing to growth, others may not be replaced, especially in the case of grains if El Niño's dry conditions continue to impact rural output.
It's worth noting that this crucial factor was not mentioned in any GDP or national accounts reports, and it resulted in a 1.1% deduction from GDP growth. Without this depletion, the quarterly figure could have reached approximately 1.5%, with annual growth resembling a robust 3.3%. Such performance might have led to discussions about the possibility of an impending rate hike in the near future.
