GDP in detail

By Leith van Onselen

As noted by Houses and Holes earlier today, the Australian Bureau of Statistics (ABS) today released the national accounts for the June quarter, which registered a 0.6% increase in real GDP over the quarter and a 3.7% rise over the year. The market had expected GDP to increase by 0.7% over the quarter.

The below chart shows the breakdown by component compared to the previous quarter:

As you can see, the 0.6% increase in real GDP over the quarter was fairly broad-based, with only the change in inventories (-0.3%) dragging on growth over the quarter.

Queensland and Western Australia drove the jump in GDP, with state final demand increasing by 3.6% and 2.1% respectively over the quarter. Victoria, by contrast, shrank over the quarter, with state final demand contracting by -0.3% – the second decline in three quarters:

The resource states of Western Australia and Queensland have also driven the annual result, posting growth in final demand of 15.9% and 8.7% respectively in the year to June 2012:

The terms-of-trade declined for the third successive quarter, down -0.6% over the quarter. The terms-of-trade decline will accelerate in coming quarters given the recent heavy falls in iron ore prices – Australia’s major export commodity (23% share of total merchandise exports):

The decline in the terms-of-trade is now starting to drag on income growth, with real per capital disposable incomes growing at only 1.2% over the year, versus 2.2% growth in real per capita GDP. Going forward, income growth will continue to be weak as long as the terms-of-trade continues to unwind.

Arguably, one of the best stories to come out of this release is that productivity continued to grow, with real GDP per hour worked increasing 0.2% over the quarter, which follows the 2.1% rise in the March quarter. The structural adjustment under way looks like it is creating greater efficiencies in the weaker sectors:

Finally, the household savings ratio rose slightly over the quarter to 9.2% from 8.9%, and remains well above the levels of the 2000s housing/credit boom, but below the recent peak level of 12.6% reached in December 2008 at the height of the financial crisis:

Overall, the result was solid. Looking forward, however, (ah, yes, we must) risks are building for subsequent quarters. The recent sharp decline in iron ore prices has seen large falls in Australia’s terms-of-trade, crimping incomes. In addition, mining capital expenditure, which has recently driven much of Australia’s GDP growth, is now coming under pressure as mining investments are cancelled and exploration expenditure is cut.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.


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  1. Top stuff, UE. That new household savings rate of ~10 per cent looks well entrenched. Allied to continued weak new credit, it should take us mere decades to unwind this painful debt binge.

    • Decade? 10%? Now there’s two metrics that get used regularly at a Property Investors seminar. All you need is the word, tax, and we’ll be off again in a heartbeat.

      • Isn’t it ironic that a 10 per cent savings rate strikes fear into retailers and the FIRE sector. History suggests it ought be 15 per cent. Watch them scream then!

          • Karan, I have used the opposite/juxtaposition facility of ‘irony’ correctly.

            If a saving rate of 10% causes retailer retrenchment and bankruptcy when the long term norm is 15% plus and retreat from overleverage suggests savings ought be higher again and stay that way for years, it is entirely appropriate to point out the irony of the exquisite position retailers have created for themselves.

    • Agree. Just look at other developed economies post GFC (the ones which were not cushioned via a resources demand…) – the unwind far from complete. If it goes that way, we will be no different, may even be worse given our high private debt burden.

      • 3d, what about the elephant in the chart everyone is seemingly ignoring? The entire GDP growth was driven from the states with mining, Looking forward one sees a world of hurt when the correction to commodity prices and the subsequent mass layoffs really start to bite in the next couple of Qs and ripple through the (real) economy.

        Am thinking banks in deep shit (they are, after all, fiddling the books to keep earnings up and not taking reasonable loss provisions for the shitstorm that’s about to arrive in housing), the currency heads to 80 or lower and inflation starts to bite, especially at the bowser and meanwhile the state and federal governments undertake a public servant purge (in a “rearrange the deck chairs” attempt to right the good old ship “Budget”) on a scale a dictator would be proud of (but they only lose their jobs, not their heads, well, not until their financial situation arrives to the sound of the unavoidable debt-laden inevitability of poverty.

        Cash Converters will be doing a roaring trade, maybe there’s the equity pick for the depression we can’t avoid?

        • I’ve never ignored that! Has always been my primary case – the boom ends, our only point of differentiation from other developed economies with high private debt and low growth – look out basket – here we come.

          There is no way boom-end and currency decline will result in a resurgence of industrials/manufactures – hasn’t anywhere else after several years. Sober Look also noted the restraint to growth engendered in a low currency/high oil period.

          On the bright side, I’m still in the wait and see extent of China stimulus camp. Forget all the guff about rebalancing now – first and foremost China needs growth to sustain stable employment and secure the role of the middle-class whilst bringing millions more into the fold.

          ‘Whatever it takes’ will be the new regime maxim.

  2. Diogenes the CynicMEMBER

    15%? Sir John Templeton recommended you save 50c of every $. Of course he graduated during the Depression and accordingly had a particular view.

    I wonder if the Y/Z generation are going to have similar saving memes drummed into them in years to come.

    • You know who I feel sorry for the most? Poor old gen x. The boomers will weasel their way out of this via vested interes/weak politicians. Gen y/z will toughen up and learn what not to do. What’s gen x got going for them? An oversized mortgage young kids and not a bright future.

      Mod: that’s not helpful, the rest was.

  3. Looks like Victoria could be the first state to go into recession. I’m suprised we’ve gone negative already – housing construction is still going strong in Melbourne.

    It makes you wonder how weak the non-housing economy is. I’d guess we’ll have a positve number next quarter, but look for things to really slow down after Christmas.

    I’m seeing a lot of building in my area at the moment, but it looks like it will all be done by Christmas. I’d expect a construction slump in early 2013 to put us into an official recession (in Victoria anyway).

  4. There’s a significant story in the top chart: declining growth in private sectors, with public sectors holding everything up.

    The productivity result needs to be understood in terms of the separate denominator and numerator effects; if the ratio is improving only because of a faster decline in hours worked than GDP, then not a lot to celebrate (equally a sector perspective needed – reallocation of growth to higher productivity sectors is a good outcome, but does not signal intrinsic productivity growth necessarily).

  5. Just wanted to put the glass brimming over view from Mad Adam:

    So, before we get into the day’s events its worth a quick comment on those GDP figures yesterday. They were simply, outstanding. Save yourself some time and just dismiss any negative commentary on the numbers because they are either outright lies, or reflect a lack of expertise. It’s that simple.

    It’s not that a 0.6 per cent increase is a surge in growth or anything, but numbers can’t be looked at in isolation. The lift in GDP follows a 1.4 per cent increase the month prior and would have been stronger if Australian companies had planned better. You see expenditure was strong and this wasn’t met by a lift in production but rather a run down in inventories (which detracted from growth) – to the tune of 0.3 percentage points. That is, if companies had been better able to predict demand, GDP would have been even stronger and probably closer 1 per cent.

    Domestic demand – which is what governments, consumers and business spend – was closer to 1 per cent and is surging – 5.8 per cent annually. Consumer spending is a big chunk of that and what the RBA board need to understand, and clearly don’t, is that carbon assistance payments made only a very small contribution to that – negligible in fact.

    Any negative commentary is outright lies!