Despite what we all thought a year ago, 2009 turned out to be quite a good year for Australia.
The solid fourth quarter economic growth figures from the Australian Bureau of Statistics have supported the Reserve Bank’s move yesterday to push interest rates up to so-called trend levels by the end of this year.
RBA governor Glenn Stevens said in yesterday’s post-board meeting statement:
“The board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.”
Today the ABS reported that the economy grew 0.9% in the December quarter, just above where many market forecasts sat, and 2.7% for 2009. Non-farm GDP grew 2.5% over the year.
Both were higher than the Reserve Bank estimate of 2% and 2.25% respectively in the first set of forecasts for 2010, issued last month.
A year ago though, the central bank forecast growth of just 0.5% for the year, a forecast that many analysts rejected as the Australian economy was buffeted by the global crisis and credit crunch.
In another positive, growth in the September quarter was revised up to 0.3%, up from the first estimate of 0.2%.
That made Australia the best-performed major Western economy in 2009, while growth in the final quarter was better than Europe (Germany and the UK especially). US growth in the fourth quarter was about 1.4%, (5.9% annualised) but that’s was driven by heavy stock rebuilding and government spending.
Growth in China was faster, about 2.7%, quarter on quarter (10.7% annualised). Japan’s was also faster, quarter on quarter, but that was from September quarter growth when growth almost collapsed back into the red.
In Australia, growth a 10.2% jump in Government investment, a solid 3.5% rise in private investment and a 0.7% rise in consumption by households.
Machinery and equipment spending surged 10.9% in the quarter, adding 0.8 percentage points to GDP. Household spending rose 0.7% and government spending jumped 1.8%.
The rise in machinery and equipment spending and private investment reflect the re-emergence of the mining boom, especially in the December quarter.
Despite claims in some media reports that the growth rate will put pressure on the RBA to lift rates, it won’t. The central bank has already worked out that the economy is now growing under its own demand and will continue lifting rates.
It sees inflation and wages as being under control, but wants to push rates to a level to try and head off any resource bottlenecks or cost pressures emerging under pressure from the growing mining boom.
Growth in the expenditure measure of GDP was driven by a 3.5% increase in private investment, a 10.2% increase in public investment and a 0.7% increase in household expenditure. Offsetting these increases was a fall in net exports. That was due to imports (up 7.7%) growing faster than exports (up 1.7%).
We knew that from the December quarter balance of payments.
The ABS said: “In seasonally adjusted terms, during the December quarter, real gross domestic income increased by 1.5%, while the volume measure of GDP increased by 0.9%, reflecting an increase of 2.9% in the terms of trade, 1.1% in the September quarter. (terms of trade fell 11.2% over 2009).
“The industries that provided the main contribution to growth in the production measure of GDP in the December quarter were manufacturing with a 5.1% increase in seasonally adjusted volume terms and wholesale trade with a 3.6% increase in seasonally adjusted volume terms,” the ABS said.
NSW grew 2.4% for the year, WA, 2.6%, Victoria 3%, Queensland, 1.3%, South Australia, 0.6% and Tasmania, 1.6%.