The 10 charts show what’s going on in our economy

Finally there has been some good news for Australia’s economy.

Our growth, our GDP, exhibited the fastest growth since 2016 – up a strong 1.0% in the first quarter of the year, with an annualised growth of 3.1%.

This is only the second time since 2012 that annual growth has been above 3% which is where the RBA would like it to be. Contemporary Business

The rebound in growth was helped by a turnaround in net exports as well as strong public spending and a sharp rise in profits.

The RBA is likely to be relieved with the rebound in growth.

But it will still be waiting for wages growth to pick up, but this won’t happen for some time yet given the spare capacity in our labour markets, 

The risks to the global economy have also increased.

In this environment, and with inflationary pressures still modest, the RBA is clearly going to keep interest rates on hold for some time.

Recently the ANZ Bank provided a chart pack for it’s institutional clients and sophisticated investors unpacking the economy.

Here’s a summary…

Q1 growth was strong, with revisions boosting annual growth

Our 3.1% annual growth in GDP has picked up from 2.4% in 2017.A1

Source: ABS, ANZ Research

Consumer spending: nominal and real divergence

Consumer spending grew a modest 0.3% in Q1, following the strong 1% gain in Q4.

The number was boosted by a strong rise in utilities spending — likely related to the long hot summer.

Elsewhere there was strength in clothing, communications and household goods.

This is in contrast to quite weak nominal growth in these sectors, given falling prices.

At the other end of the spectrum real utilities spending has actually fallen over the past year, as higher prices look to have crimped demand.


Source: ABS, ANZ Research

Household saving rate: low and lower

The household saving fell again in Q1, and was revised lower in Q4.

The saving rate is now down to 2.1%, the lowest since the December quarter 2007.

Low wages growth is clearly contributing to the drop in the saving rate as consumers continue to grow consumption at a stronger pace than income.


Source: ABS, ANZ Research

Housing: still something left in the tank

Housing construction rose a modest 0.9%, as a rebound in renovation activity was more than offset by a fall in new building construction.

Still, this gain comes after two negative quarters. A substantial pipeline of activity remains in high-rise residential construction.

This should keep activity elevated through 2018.


Source: ABS, ANZ Research

Non-mining business investment growing strongly

Non-mining business investment is a key driver of growth. It rose 3.6% in Q1 to be 14% higher than a year ago.

This has largely been driven by stronger non-residential construction.

Although recently machinery and equipment investment has picked up.

While non-residential approvals have turned down, the strength in profits suggests that the outlook for non-mining business investment remains quite positive.


Source: ABS, ANZ Research

Public spending: growing strongly

Once again public demand contributed strongly to growth in the quarter.

It rose 1.5% q/q to be 5.2% higher than a year ago.

While infrastructure spending garners the most attention, it is spending on public consumption that is the bigger driver of overall public spending.

Given the pipeline of infrastructure spending and the ongoing roll-out of the National Disability Scheme, we expect strength in public spending to continue.


Source: ABS, ANZ Research

Exports bounce

Exports rebounded in Q1 after a weak H2 in 2017.

The growth was largely driven by a bounce in resources exports.

Exports of manufactured and rural goods were weak. Services exports rose only modestly after falling in both Q2 and Q3 of 2017.

Annual growth in services exports has fallen from a recent peak of 12% in Q2 last year to just 1% in Q1.

Given the importance of services exports, we’ll be watching this trend closely.


Source: ABS, ANZ Research

Drought conditions affecting farm output

Farm GDP fell 15% over the year to March, while exports are down 14% y/y, partly as a result of dry conditions affecting much of eastern Australia and some of the west.

Low rainfall in May also cemented the dry start to the southern wet season, which does not bode well for the southern agricultural cropping season.

While farm accounts for less than 2½% of GDP, big swings can affect headline GDP and drought conditions can flow through to inflation.


Source: Bureau of Meteorology, ANZ Research

Wages growth: on the improve

The GDP measure of wages looks to be well past the trough.

Average non-farm wages rose 0.5% in the quarter, although annual growth edged lower to 1.6% due to base effects.

Other measures of wages are also trending higher. We think wage growth will improve from hereon, but the path is likely to be gradual given ongoing spare capacity in the labour market and volatile in the case of the GDP measure.


Source: ABS, ANZ Research

Inflation measures gradually coming off their lows

Inflation is picking up, but remains low compared with history.

The household consumption deflator rose 0.5% q/q in Q1, while the deflator, excluding food and energy, rose a slightly more modest 0.4% q/q, lifting the annual rate to 1.4% well off the low of 0.6% recorded in Q4 16.

These measures of consumer inflation are broader than the CPI and suggest that price pressures are gradually increasing but remain low.


Source: ABS, ANZ Research

Source: ANZ Bank Report, author Felicity Emmett,  Senior Economist
Note:This report was intended for ANZ’s institutional, professional or wholesale clients, and not for individuals or retail persons.


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'The 10 charts show what’s going on in our economy' have 1 comment


    June 15, 2018 Alex Demirci

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