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An incredible economic run – but the pace is slowing

Record stretch

The Australian economy grew by a paltry 0.3 per cent in the March quarter, to expand by 1.7 per cent over the year.

Cyclone Debbie impacted dwelling construction adversely, subtracting 0.3 percentage points from growth, while net exports were also impacted.

GDP Contribution

Growth was experienced across 17 of 20 industries, led by finance and insurance, wholesale trade, and healthcare and social assistance, but this was offset by quarterly declines in manufacturing and agriculture. Australia Economy Concept

At the state level there were strong increases in final demand in Victoria (1.4 per cent) and South Australia (1.1 per cent) in the quarter, while Tasmania was also in positive territory (0.9 per cent).

Final demand was flat in New South Wales and Queensland.

The weak headline result pulls the annual GDP growth rate down to 1.7 per cent, while on a per capita basis annual growth in the economy has all but slowed to a halt in real terms.

Gross domestic product

The news in the first quarter of the year was far from all bad – notably, the terms of trade surged by 6.6 per cent to be miles above the long run average.

terms of trade

And, as a result, real national income and real disposable income has surged to record highs.

National accounts

Unfortunately the boom in the terms of trade will be reversed next quarter, with the iron ore price zooming back down to earth with a thud.

Consumption modest

Household consumption will need to step up a gear.

Compensation of employees did bounce back to rise by 1 per cent in the quarter, while household consumption increased modestly, with the derived saving ratio dropping to 4.7 per cent in the March quarter, the lowest ratio since March 2008.

Household saving

A mediocre result, overall, but one which means Australia has racked up 103 consecutive quarters since the last technical recession, an incredible run by anyone’s reckoning.

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About

Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


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