As summarised earlier, the Australian Bureau of Statistics (ABS) today released the national accounts for the September quarter, which registered a 0.9% increase in real GDP over the quarter and a 2.5% rise over the year. The result beat market expectations of 0.8% growth over the quarter and 2.4% growth over the year.
On a per capita basis, real GDP rose by 0.6% and was up by only 1.0% over the year. More importantly for living standards, real national disposable income per capita fell by 0.5% over the quarter and was down 2.4% over the year.
According to the ABS, seasonally adjusted GDP growth for the quarter was driven by:
- Net exports (+1.5 percentage points); and
- Final consumption expenditure (+0.5 percentage points); partially offset by
- Total gross fixed capital formation (-1.0 percentage points).
Reflecting Australia’s houses and holes economy, the main contributors to GDP growth over the year in trend terms were Financial and insurance services (+0.5 percentage points) and Mining (+0.3 percentage points), although Health care and social assistance (+0.3 percentage points) and Information media and telecommunications (+0.2 percentage points) also contributed to growth. Offsetting these growth industries was Manufacturing (-0.1 percentage points).
Real GDP per capita rose by 0.6% in the September quarter but was up by only 1.0% over the year. The below charts track real GDP against GDP per capita, and shows that Australia’s still high immigration program is masking our poor underlying growth performance:
Results were poor at the state and territory levels, with quarterly final demand growing in only SA (+0.1%) and TAS (+0.1%), but falling in NSW (-0.2%), QLD (-0.2%), WA (-1.3%), the NT (-7.1%), and the ACT (-1.5%), whereas VIC was flat (0.0%). Final demand nationally also fell by 0.4% over the quarter and was up just 0.8% over the year. [Note: state final demand does not include exports, so is markedly different to GDP]:
The terms-of-trade fell by a seasonally-adjusted 2.3% over the quarter and by 10.4% over the year, and is now tracking at its lowest level in more than 9-years, with much further still to fall:
And as expected, the falling terms-of-trade dragged-down income growth, with real national disposable income (NDI) down 0.1% over the quarter and by 1.0% for the year.
However, because of population growth, per capita NDI fell by a stronger 0.5% over the quarter and by 2.4% over the year, and will continue to be weak as long as the terms-of-trade unwinds from its current still high level (see next chart).
Indeed, the ongoing slump in per capita income – down 5.6% since December 2011 – is the real story of this release, not the meaningless rise in GDP, which does nothing for living standards.
The fall in the terms-of-trade and national disposable income have also helped drag-down nominal GDP, which rose by only 0.8% over the quarter and by 2.2% over the year, and is generally a negative indicator for government finances:
One small positive from this release is that real GDP per hour worked grew by 0.7% in the September quarter and was up by 0.7% over the year, suggesting moderately improving labour productivity:
However, the household savings ratio did retrace to 9.0% from 9.4% in June, and remains in a downtrend:
Overall, this is another disappointing but unsurprising release.
Scraping under the surface of the headline lift in real GDP, brought about by rising commodity export volumes, and you have an economy where national income is contracting along with domestic demand.
The results are even worse when adjusted for population growth, with real per capita national income sliding by 5.6% since December 2011.
The outlook is also poor, with ongoing falls in commodity prices (particularly iron ore) likely to continue dragging down per capita NDI over coming years – a trend that will persist as the terms-of-trade retraces back towards its long-run average.
The weak nominal GDP growth is also a bad sign for Budget revenues, which are already set to take a hammering as capex falls faster than forecast.
Finally, the upcoming expected sharp fall in capital expenditures will also provide headwinds to GDP over coming years, as will the likely peaking of the housing market in mid-2016.
