Published On: Thu, Jun 4th, 2015

GDP: Economy grows 2.3pc but household incomes go nowhere

 

Iron ore mine

 

Bureau of Statistics figures show gross domestic product (GDP) grew 2.3 per cent over the year to March, coming in ahead of most economist forecasts.

The typical analyst surveyed by Bloomberg expected the economy to grow 2.1 per cent over the year to March.

However, the expectations that today’s Bureau of Statistics number beat were very low, and the 2.3 per cent growth was down on the 2.5 per cent reported for the year to December.

It is also well down on the 3-3.25 per cent growth rate that is considered average for Australia over the past few decades and is needed to start pushing unemployment lower.

The March quarter growth number was a bright spot though – at 0.9 per cent, the economy would be back on track for 3.6 per cent annual growth if that pace of expansion could be maintained.

However, while the March quarter seasonally adjusted “real” gross domestic product (GDP) number was reasonably good, the key measure of disposable household income only rose 0.1 per cent in the quarter and was flat over the past year.

In practical terms, that means Australian households, on average, would feel like they are treading water financially.

The Australian dollar jumped slightly from 77.7 to 78.1 US cents on the data, after having surged well over a cent in the previous 24 hours.

The total economy is growing 0.9 [per cent] but the local economy, outside the stocks and the exports, is basically zero.

Alan Oster, NAB chief economist

The biggest contributors to growth in the March quarter were net exports (which added 0.5 percentage points) and consumer spending (which added 0.4 percentage points).

The Federal Treasurer Joe Hockey said the real positive in the trade numbers was strong growth in services exports.

“Significantly, services exports are up 8 per cent over the past year, in line with rising demand from Asia. This is the fastest growth since 2007,” he told reporters at a press conference.

“There is growth in areas such as tourism, education and professional services, which are set to become increasingly important drivers of growth in the future and will be supported by our free-trade agreements with China, Japan and Korea.”

NAB’s chief economist Alan Oster said the problem is domestic demand is flat-lining.

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AUDIO: NAB chief economist Oster says times tough in WA, Qld, NT (ABC News)

“You’ve got consumption growing at about 0.5 [per cent] which is really weak, you’ve got a lot of growth in construction of apartments and that sort of thing, but you’ve got a big hole in business investment which is driven mainly by engineering construction, which is the mining bit,” he observed.

“The total economy is growing 0.9 [per cent] but the local economy, outside the stocks and the exports, is basically zero.”

Over the past year, mining and financial services together accounted for just under half of Australia’s economic growth, with information/telecommunications and health care/social assistance also growing solidly.

However, professional, scientific and technical services shrank, as did construction, with a fall in mining engineering work more than offsetting the ongoing boom in home building.

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Fall in WA state demand ‘might feel like a recession’

Western Australia’s economy was by far the country’s worst performer, falling into recession in terms of economic activity within the state, i.e. excluding exports.

The state’s economy shrank by an alarming 1.8 per cent in the March quarter, in seasonally adjusted terms, following December’s revised 0.1 per cent contraction.

The Bureau of Statistics had previously published that WA had grown by 2.1 per cent in the December quarter.

Non-housing construction was unsurprisingly the biggest drag on growth, with activity on massive LNG and mining projects drying up.

The Federal Treasurer Joe Hockey responded to these figures by saying that Western Australia “is coping quite well” with the transition from a mining construction boom to a commodity export boom.

“Bear in mind that the state figures exclude exports. So you’ve got to take that into account,” he told reporters.

“So to suggest that any state is in recession is wrong because the numbers in the national accounts exclude exports.”

It might feel like a recession, it’ll certainly feel really tight.

Alan Oster, NAB chief economist

CommSec economist Savanth Sebastian said that, adding net exports to state final demand puts Western Australia at 1.3 per cent economic growth in the quarter, with Queensland the worst performer at -0.1 per cent.

NAB’s Alan Oster said half of Western Australia’s economy is made up of exports so he agrees it is not in a recession.

However, the bulk of income from those exports does not go to Western Australians, so times are tough for local businesses and households.

“It might feel like a recession, it’ll certainly feel really tight,” Mr Oster said.

He said the construction phase of the resources boom added much more to the local economy than exports.

“The old rule of thumb was in iron ore mines four people to build it, one person to basically run it, or on an LNG platform something more like 15 people to build it and one to run it,” Mr Oster added.

Queensland struggling, Victoria the standout

Queensland narrowly missed falling into a local recession as well, with growth returning at a pace of 0.1 per cent in the quarter, an improvement on December’s 0.9 per cent contraction which was also driven by the wind up of large scale resources projects.

Victoria was the standout state with growth again strong at 1.3 per cent, just shy of December’s 1.6 per cent result.

The ACT came in a close second, expanding by 1.4 per cent in seasonally adjusted terms, with public sector spending at both local and federal level driving the result.

The hot housing market in Sydney failed to light a fire under growth in New South Wales with the economy growing by 0.5 per cent, slightly down on December’s 0.6 per cent result, as construction and consumer spending dropped off a little.

South Australia’s was the only mining-heavy economy to see strong growth, up 0.8 per cent in the quarter, following December’s 0.3 per cent rise.

The Northern Territory contracted by 0.6 per cent, Tasmania’s economy grew by 0.3 per cent.

 

 

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