The Australian National Accounts were released recently showing the economy growing at 0.5 percent for the second quarter and 3.1 percent year-on-year.
Australia is pushing through its 23rd consecutive year without a recession, a quite remarkable achievement:
That’s the good news. In truth though, a pretty weak result all round.
The strong growth of the first quarter had all been driven by net exports which dived this time around – such can be the nature of quarterly data. In fact, nominal GDP was negative in Q2, with real GDP saved by changes in inventories, as was correctly predicted by Westpac in its preview at the beginning of the week.
Not much joy this quarter really. Commodity prices have tanked, dimming the outlook considerably, and real national disposable income is falling, declining by 0.6 percent in Q2. Mining capital investment will fall sharply over the coming year too.
Household consumption came in a bit better than expected, rising by 0.5 percent this quarter and 2.2 percent over the past year.
Admittedly I was head faked here because although the retail trade data on the second quarter was basically crap, the ABS retail trade data does not capture the wider services sector effectively where expenditure did increase in Q2.
Fair play – half a green tick for household consumption, and the word is we can expect retail trade growth to resume in July, albeit moderately (exp +0.4 m/m).
GDP growth of 3.1 percent is decent enough and only moderately below the long term trend, but when adjusted for population growth GDP per capita is actually growing at a smidgeon under half of that pace.
State Final Demand
State Final Demand, a measure which excludes exports, unsurprisingly shows that the mining states are in full transition mode, with Queensland and Western Australia the weakest performers.
South Australia recorded a much better result this quarter after three negative prints.
More significantly state final demand over the year is up strongly in New South Wales, but pretty ordinary almost everywhere else.
One of the rare bright spots in the Q2 National Accounts was residential investment.
The Reserve Bank has been hoping to partially offset the collapse in mining investment with a boom in residential dwelling construction, which is a tall order given the respective magnitude of the two sectors, although strong the economic multiplier of residential construction should not be underestimated.
Major renovations have continued to disappoint but this was more than offset by rising investment in new dwellings, and total residential investment therefore recorded an 8.6 percent increase in chain volume measures terms over the past year.
That’s a good sign and it is getting better.
This is heartening and there is plenty more to come in the pipeline as shown by this week’s building approvals data.
Even so, dwelling construction can only contribute a few percent to GDP, so the economy needs more heavy lifting from consumption and government expenditure.
The economy would also be somewhat happier if the commodity price index desisted from tanking, but there is little sign of that happening to date.
Overall, although the headline data was positive, with export prices falling, China’s real estate market slowing and Australia’s capex investment to fall, the outlook remains soft.
Most economists are still arguing that the next move in interest rates is up, but not next until year. Not so sure about that myself given all of the above, but on hold for a fair while yet seems to be the most likely outcome.