This seems to me to be a solid take from Stephen Walters at JP Morgan on today’s GDP figures:
Australia’s economy expanded 0.8%q/q last quarter, slightly firmer than expectations, and a welcome improvement on the previous quarter’s sluggish gain of 0.6%. That’s the good news. The less encouraging revelation in today’s National Accounts is that the lion’s share of growth in the economy came from one source – net exports, which contributed 0.6% points to the headline GDP rise. Domestic spending (GNE) at least avoided another contraction but, as rotations in the sources of growth go, this one is glacial.
Moreover, even with booming net exports last quarter, annual GDP growth remains unimpressive, although it is improving. The annual change is just 2.8%oya, still below trend, meaning the jobless rate will keep climbing. Outside higher exports, the positive contributions last quarter from household spending, home construction and public spending (all higher) were wiped out by a big fall in private investment, leaving domestic demand all but flat. Where’s the rotation?
Still, let’s not get too gloomy. We expect a pretty benign post mining-investment-boom adjustment, with growth lifting slowly towards 3% over the course of 2014. Given the sheer size of the resources boom – more was invested in mining in Australia in the seven years to 2012 than in any other country – we should accept a period of sub-trend growth without complaint. We won’t, but we should – Australia’s economic history is littered with painful busts after every previous terms of trade bonanza. Not this time!
For households, the key takeaway today is that the savings rate dropped below 10% for the first time since 2010, which may be a sign that consumers are feeling more confident. The fall in the savings rate helps to square decent spending outcomes against what has been pretty sluggish growth in household income. Still, with wages growing at the slowest rate for more than a decade and the jobless rate rising, it will take further sustained falls in the savings rate to deliver decent household spending outcomes from here.
Public spending was firm last quarter, with both government consumption and investment rising. Government spending, though, will become drag this year if the Budget unfurls a larger fiscal contraction, as we anticipate. Similarly, the various state governments are implementing budget savings alongside the Commonwealth.
Dwelling investment rose a decent 1.0%q/q last quarter, with further gains to come if the recent spike in building approvals is anything to go by. Private business investment outside housing, though, dived 2.3%q/q, shaving 0.6% points off GDP growth and offsetting the positive contributions from household spending and government investment, in particular. Investment outside mining needs to lift now that the economy has reached the high ledge of the steep mining “capex cliff”.
The robust net exports contribution last quarter came mainly from a bounce in export volumes, but was helped along by fall in imports, partly owing to less demand for capital equipment from the miners. Export volumes lifted 2.4%q/q, while imports fell 0.6%q/q. The lift in export volumes is a natural extension of the mining investment boom; the expansion of capacity now is paying welcome dividends in terms of higher output and exports.
The three measures of GDP delivered some divergence, but it is difficult to extract a clear message from this. GDP (E) expanded 1.0%q/q, GDP (I) rose 0.8% and GDP (P) was up 0.6%q/q, yielding the average headline change of 0.8%q/q. In the production accounts, output from the rental, hiring and real estate sector grew faster than all other sectors, followed by manufacturing (!?). Despite elevated AUD, high costs and sometimes crippling regulation, it seems not all firms that still “make things” are shutting down.
In terms of price pressures, they were more muted in the national accounts than in the CPI data. The price deflator for household consumption, for example, rose 0.6%q/q in the December quarter, below the headline CPI rise of 0.8%. Real unit labour costs fell again as productivity rose a decent 1.3%q/q, for a 1.9%oya rise over the year.
