For anyone that follows these things, CBA’s various economics teams are the very obvious one-eyed bulls of the Australian economic scene. I don’t generally bother reporting their stuff for that reason but today is their time to shine so I give you Craig James!

Australian economy: What’s not to like?

National accounts

Australian economy grew by 1.1 per cent in the March quarter (fastest rate in two years) after a 0.8 per cent increase in the December quarter (forecasts centred on a 0.9-1.0 per cent rise). The economy has grown 3.5 per cent over the past year, above the decade-average growth rate of 2.9 per cent and the 15-year average of 3.1 per cent.

Contribution to growth: The biggest contributions to growth came from net exports (+1.4 percentage points) followed by household consumption (+0.3pp), dwelling investment (+0.2pp) and government consumption & private equipment investment (both +0.1pp). The biggest drag on growth was by inventories (-0.6pp).

The Bureau of Statistics has ceased publishing data on state & territory exports & imports. In terms of state final demand, NSW had the fastest quarterly growth in the March quarter (up 2.4 per cent), followed by Tasmania (up 0.8 per cent), Victoria (up 0.7 per cent). State final demand fell the most in the Northern Territory (down 6.5 per cent) followed by Western Australia (down 1.5 per cent), Queensland (down 0.8 per cent), the ACT (down 0.2 per cent) and South Australia (down 0.1 per cent).

Industry sectors:Twelve of the 19 industry sectors expanded in the March quarter, led by Mining, up 8.6 per cent.

Productivity: Gross value added per hours worked in the market sector rose by 1.0 per cent in the March quarter after 0.9 per cent growth in the December quarter. Annual productivity growth stands at 2.7 per cent.

Household spending: Only six of the 17 sectors recorded weaker spending in the quarter. Household spending rose by 0.5 per cent in the March quarter after 0.8 per cent growth in the December quarter. Annual growth stands at 2.8 per cent. Hotels, cafes & restaurants rose by 3.6 per cent but Cigarettes & tobacco fell the most, down by 7.6 per cent.

What does it all mean?

• The latest data serves as a wake-up call. Despite some perceptions to the contrary, the Australian economy is doing well. In fact it’s doing very well. The economy is growing comfortably above its trend or “normal” pace; inflation is under control; interest rates are at historic lows; productivity is solid; and home construction and exports are leading the way forward. There are plenty of reasons for Australians to be celebrating our good economic circumstances.
• It is not to say that there aren’t challenges. The population is ageing and this provides challenges for future revenues and spending. Over the next few years it will be important that non-partisan discussions are conducted about tax structures and entitlements.
• The Reserve Bank is likely to be pleasantly surprised about the latest economic growth results, previously expecting 3.0 per cent growth in the June quarter. Growth now looks like being closer to 3.25-3.50 per cent.
• Last quarter we noted that “Overall, the economy is lifting and heading back to a “normal” 3.0 per cent trend pace.”
• Indeed that “normal” pace of economic growth has now been achieved. The good news is that near-record dwelling approvals points to stronger home construction ahead. Economic momentum will also be supported by state and territory infrastructure spending and firmer exports. Productivity is also solid – expanding at a 2.9 per cent average pace over the past three years. The main risk is politics, especially a prolonged process of passing the current Budget, affecting business and consumer spending.
• CommSec believes that the next move in interest rates is up – but there is no rush. Rates could start their return to more “normal” levels late this year or early next year.