Would you believe it? Look how much our economy grew last year

Well, the Australian National Accounts and Gross Domestic Product – the biggest number of all.
Let’s take a look through a lot of news in just two short parts!

Part 1 – GDP surprises again

Real GDP growth recorded a more upbeat than expected result of +0.6 per cent in the fourth quarter, while the third quarter result was revised up to +1.1 per cent meaning that the economy grew by a much better than expected +3.0 per cent in 2015, and the best annual rate of expansion since September 2012.

The results for the past two quarters now imply an unbelievably strong annualised rate of growth of around +3.5 per cent, and show that we are now tantalisingly close to a quarter of a century along from the last recession, at an incredible 98 consecutive quarters.

A fine effort by anyone’s standards!


Gross domestic product


The challenges are well enough known, with the terms of trade declining by another -3.2 per cent back towards their long term average in the fourth quarter, resulting in a third consecutive decline in real net national disposable income (although the last two quarters have only seen slight declines, taking the year-on-year decline to -1.1 per cent).
Terms of trade


Business investment unsurprisingly fell further (-3.1 per cent), driven once again by collapsing engineering construction activity (-12.3 per cent) reflective of the unwinding of the resources boom.
As for the drivers or growth, then? A slightly better than expected result and therefore contribution from inventories (+0.2ppts), a decent contribution from household consumption (+0.4ppts), and government expenditure.
Government expenditure was up by +1.6 per cent for the quarter and +2.8 over the year. Meanwhile, household spending increased by +0.8 per cent in the quarter and +2.9 per cent over the calendar year, which is a surprisingly strong result given soft wages growth.
The extremely weak result for non-dwelling construction is an apposite portrayal of the ongoing mining investment bust!


GDP contribution


As you can see in the graphic above, net exports contributed exactly nothing to growth in the fourth quarter.
In terms of which cities and regions are driving the growth, it’s mainly been a Sydney and Melbourne thing in recent years.
State final demand was again sharply negative in Western Australia (-2.3 per cent) and the Northern Territory (-5.6 per cent, I couldn’t even fit this on the chart, without a massive contortion of the y axis!) as these states transition from resources construction to the exports phase (state final demand is a measure which does not capture exports).
Notably, Queensland has already experienced an enormous decline in resources investment of nearly 50 per cent over the past two years, yet managed to move into positive territory on this measure.


State final demand


Part 2 – Housing and households

Compensation of employees and gross household income has increased steadily in aggregate, as you would expect in a country with strong population growth, but in reality wages growth and disposable income growth has slowed significantly since the end of the mining boom.

Household income account

How then has household expenditure produced such as solid result? The National Accounts comprise a huge volume of figures and have many moving parts, but the below chart seems to me to be one of the most significant.
Low interest rates have, with a bit of lag, encouraged Australians to start spending again, with the household savings ratio declining sharply from 9.2 per cent in June 2015 to just 7.6 per cent by December, which is the lowest savings ratio since the third quarter of 2008.


Household saving ratio
And what of the housing market? Dwelling investment has responded as well as could have been expected to low interest rates, growing impressively by +12.1 per cent over the year, although disppointingly major renovations work has barely budged.
Looking forward we can probably expect to enjoy the multiplier effect of the residential construction boom for quite some time to come yet with approvals still tracking at historically high levels. However, at this stage in the cycle it is now doubtful whether expansion in residential dwelling investment can contribute much further to GDP growth for many more quarters.

Dwelling investment

Finally, total interest payable on dwellings was $55 billion in 2015, which is a remarkably low figure that remains well below the total interest paid by households in 2008, despite the estimated resident population having surged by around 2.5 million persons over that time.
Assuming the figures are complete and accurate, the aggregate of interest paid on dwellings implies a remarkably low average outstanding mortgage rate of only around 4 per cent.
This sounds too low, adding weight to the theory that the use of offset accounts is becoming increasingly popular.
APRA data released this week showed that 42.3 per cent of all outstanding mortgages have an offset facility.


Interest on dwellings


The interest payable figures suggest that mortgage serviceability for existing homeowners has improved dramatically since September 2008, recently reflected in the lowest rate of mortgage delinquencies on record.

The wrap

This was a much stronger result than had been anticipated, although a +0.9 per cent GDP growth reading will “drop off” next quarter, suggesting that annual growth could be heading back towards around +2.6  per cent in due course, which intuitively feels like a much more realistic rate of growth than +3 per cent.
The stock market went on an absolute tear with the ASX 200 up by a massive +2.5 per cent, before paring back gains a little at the time of writing.
Overall a happy result on the face of it, but spare a thought for those located in mining and resources regions where the collapse in demand is hitting folk hard.



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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

'Would you believe it? Look how much our economy grew last year' have 5 comments

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    March 11, 2016 @ 5:27 pm Ian

    It seems to me that if you take out the increase in Government expenditure (which after all is only adding to the deficit), our GDP growth rate wouldn’t have been particularly good. If the Government was required to immediately balance the budget (like most of us), I’m sure we would be thrown straight back into recession!

    So is it really that great to strive for growth at all costs, when those costs will ultimately have to be paid by our children?


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      March 11, 2016 @ 9:04 pm Pete Wargent

      It looks that way for the quarter, but gov’t expenditure was only a key contributor in Q4.

      For the year contributions to GDP growth came mainly from consumption and growth in exports, plus a bit of a +ve move in inventories.


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    March 11, 2016 @ 10:44 pm Kathy

    Yes, the economy supposedly “grew” 3% for the year. But our debt increased by 13% over the same period. So we’ve increased our already huge debt load by another 13% to produce 3%. It’s all debt fuelled growth rather than a real rise in productivity. Not that great a result.

    Our debt is already at record levels. Government debt is growing at the fastest pace of all developed and many developing countries. But our private debt is growing at the fastest pace of all. Private Australian debt to GDP ratio is now at 102%. Total Australian debt to GDP ratio is at 350%. Our private debt sits at nearly $1.8 trillion. That’s a huge claim on tomorrow’s income (which is by no means guaranteed) for today’s consumption. Debt is debt is still debt. It will need to be repaid at some stage. Once again, not that good a result.

    If you look at Real Net National Disposable Income, which is a better and broader measure of wellbeing in the economy, GDP actually FELL by 1.1% over the same yearly period. This is because the income received for this so called “productivity” fell. So we are actually getting paid less for what we produced, and we increased our debt to do it! Again, not so good.

    This so called “productivity” has largely been brought about by our record low interest rate. An interest rate by the way, which sits lower than the so called “emergency levels” required during the GFC. If our economy was doing so well why would our interest rates need to be this low? If the global economies were doing so well, why would there be a need for zero or negative interest rates and massive stimulus? Why do countries need to devalue their currencies at the expense of their trading partners in the race to the bottom?

    And in this low inflation rate environment, real wages are stagnating or falling behind. This low inflation environment will also put a dampener on asset prices.

    And the furphy about our unemployment rates are also misleading. The Roy Morgan unemployment figures, which come out in tandem to the ABS official figures, have our unemployment rate at closer to 10% and underemployment at closer to 19%, rather than the data massaged, manipulated, seasonally adjusted “official” figure released by the ABS (for the December 2015 quarter). Most of this employment is in the construction sector building ever more properties, a non productive consumption item and which is unlikely to last or for part time or low paying or menial jobs.

    So not all that convinced we are doing quite as well as we are lead to believe.


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      March 12, 2016 @ 7:08 am Michael Yardney

      Thanks for that detailed analysis.
      GDP growth was clearly helped by a combination of government spending and consumers dipping into their savings to spend


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      March 12, 2016 @ 10:39 am Peter

      Hi Kathy,

      Agree with much of this – just noting the ABS figures aren’t massaged or a “furphy” – they are in line with international practice – it’s just that most people, media included, never get as far as reading their figures on underutilisation & under-employment. Their quarterly data suggest a similar slack in the labour force to Roy Morgan – in four states & territories in particular – hence the low interest rates you mention.

      Also, just noting that GDP didn’t fall, it increased strongly, in fact at an unbelievably strong pace over the last 6 months. Real net income I did mention in the article (see terms of trade chart) – some of the media seized on this point after their now traditional annual predictions of a recession failed to materialise. For balance they might also have noted that real income per capita soared by an incredible +3.1% per annum over a 17 year period before stagnating from around 2008, so in fact we have become better off as a nation over time. Some of this boom was productivity driven, some by demographic shifts which increased the share of population in work. Alas, commodity prices can’t go up for ever.

      Agree that much of the ongoing growth is related to debt, as is the way in modern economies. My personal opinion is that all household debt won’t all be paid back – it never has been in the past – but happy to agree to disagree on that point.

      FWIW, annualised GDP growth will drop back to a more believable level next quarter as a strong reading drops off.


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