From NAB this afternoon comes some more detail of the GDP release:
Economy grows 0.6% in Q2; headline flatters the detail.
Australia’s growth continued, at a 0.6%/2.6% pace in Q2 after 0.5%/2.5% in Q1
- Headline growth a shade better than expected (consensus revised down from 0.6% to 0.5% as of yesterday and NAB’s 0.4% forecast)
- Growth held back by soft private spending from softer household consumption, declining business investment and a stalled dwelling recovery
- Domestic final demand (spending) grew just 0.3%/0.6%; growth now already reliant on net exports that’s supplied 1.0% of the economy’s momentum this past year
- Private spending +0.1%/+1.4%; public spending 1.2%/-2.1%
- Growth through this half year at sluggish 2.2% annualised pace, down from 3.0% through H2 2012
- Not a good stepping off point; monetary easing bias to remain
- AiG PSI Services index still weak at 39.0 in August; a new cycle low
The Australian economy managed to grow by a respectable 0.6% in the June quarter, above the 0.5% revised consensus expectation and our own 0.4% pick. To that extent it was a relief and certainly with the AUD that was testing lower levels into the release of the number, the better than expected result producing a knee jerk relief rally.
But that is about where the relief ends. Even in broad terms, the economy is growing below trend, the 2.6% this past year below average growth of 3.0% this past decade and 3.9% in the previous decade. So there is no doubt that the economy is growing within its potential and not one that will be spitting out any sustainable inflation shocks.
The detail of today’s result shows that private sector spending – household consumption, dwelling investment and business investment excluding asset purchases from/ sales to the public sector – grew only just, by 0.1% in Q2, up just 1.4% these past four quarters.
Household consumption rose just 0.4%/1.8%, barely faster than population growth. With the brief exception of the 2008-09 experience, this is the slowest pace of household consumer spending for two decades. A further rise in the household savings ratio to 10.8%, the highest we’ve seen for two years, testament to a re-asserted consumer cautions that’s showing continued propensity to save and pay down debt rather than spend and borrow.
Recorded private aggregate investment rose 5.9%/6.1%, but this was more than accounted for by the national accounts book entry for the purchase by a private sector consortium of the 99-year leases for New South Wales’s Port Botany and Port Kembla in April. Take that out and private business investment declined by 1.2%/-1.3% after -4.3%/+2.4%, declines that were evident in last week’s Capex and Construction Work Done reports. Recall also that in the Capex report, mining investment rose somewhat while non-mining Capex declined with a cautionary outlook for 2013-14.
The dwelling investment recovery ran out of legs in the June quarter. Dwelling investment contracted by 0.6%/+4.0% after three quarters of growth to be still up 4.0% over the past year.
As for government spending, that rose by 1.2% in underlying terms, broadly in line with what we reported from the Government Financial Estimates for Q2 released yesterday.
To some extent, growth was saved by some contribution from inventories (+0.2%) and the statistical discrepancy (0.1%).
