GDP euphoria needs a reality check

ScreenHunter_2742 Jun. 05 09.51

By Leith van Onselen

The more I dig into yesterday’s superficially strong GDP result, the worse the underlying fundamentals appear.

While headline “real” GDP recorded quarterly seasonally-adjusted growth of 1.1% and annual growth of 3.5% – the best outcome since March 2012 – actual spending in the economy fell.

That’s right, real gross national expenditure (GNE), defined as the sum of all expenditure within the economy, both public and private (including on imports), fell by 0.3% in seasonally-adjusted terms in March and was up by only 0.9% over the year – the fifth consecutive quarter where annual growth in GNE was below 1%.


In trend terms, GNE was flat over the March quarter, and up by only 0.7% over the year – also the fifth consecutive quarter where annual growth in GNE was below 1%.

The below charts, showing the trend growth in GNE, highlights the current situation more clearly.

First, after rising strongly in the three years to September 2012, GNE has essentially flatlined:

ScreenHunter_2743 Jun. 05 10.09

Moreover, GNE growth has fallen over the past two quarters:

ScreenHunter_2744 Jun. 05 10.11

And remains in the gutter in annual terms – certainly well below the 3.7% average growth recorded in the decade to March 2014:

ScreenHunter_2745 Jun. 05 10.13

While the big expansion in export volumes is welcome, it does hide the fact that the domestic economy remains weak. Moreover, given the big post-Budget fall in consumer sentiment, the potential slowing of the housing market (i.e. slowing price growth, approvals, and lower auction clearances), and the expected accelerated falls in mining investment, stiff headwinds are likely to continue, weighing on both incomes and jobs.


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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.