Weaker growth in June quarter rounds off a middling economic year
Bernard Keane and Glenn Dyer|
Sep 03, 2014 12:57PM |EMAIL|PRINT
The economy slowed back to 2013 growth levels in the June quarter, today’s national accounts show, but labour productivity continues to perform strongly.
Earlier this week, TheAustralian Financial Review lamented that the government had failed to make the case for industrial relations reform. It was fine to beat up unions, the Fin’s editorial writer noted, but the government has to explain the need for reform. But for much of his time as opposition leader, Tony Abbott wanted business to make the case for industrial relations reform, a kind of “leading from behind” approach induced by his worry about WorkChoices returning to haunt the Coalition. And today, Eric Abetz was reported in Fairfax as expansively declaring that Labor has now been “neutralised” on IR reform, and that changing industrial relations was now a “top priority” for the government.
The problem is, whether it’s business making the case for reform, or the government, or the op-ed writers of the national dailies, the facts keep stubbornly getting in the way. Today’s national accounts for the June quarter from the Australian Bureau of Statistics show strong private sector labour productivity growth, with market sector gross value added per hour worked up 0.9%, and 3.3% during the year — significantly higher than 2012-13’s improvement. The result was particularly humiliating for the business-executive run World Economic Forum, which just released a report attacking Australia’s “rigid” and “uncompetitive” industrial relations system.
Not that any of this is new — Australia’s workers have been lifting productivity since the first quarter of 2011 under the Fair Work Act IR system that supposedly stultifies businesses’ innovation and restricts the ability of managers to manage.
The overall GDP figures show what Crikey has been anticipating for a while, that the June quarter would show a weakening of the strong growth earlier this year. The economy grew 0.5% seasonally adjusted, less than half of the March quarter’s strong 1.1% result and the weakest quarter since March last year. The result for the 2013-14 financial year was 3.1%, just a touch below the 3.2% average for the past 20 years but significantly faster than the revised (downwards from 2.6%) 2.3% for the 2012-13 financial year.
A big jump in stocks in the quarter from the mining industry (as well as manufacturing and wholesaling) helped boost growth, but so did manufacturing and housing construction. Inventories contributed 0.9% to growth in the quarter, offsetting the 0.9% detraction from net exports (which we forecast several weeks ago).
The increase in stocks partly reversed a big slide in inventory levels in the March quarter as mining companies, especially those in iron ore, exported as much as they could.
Market estimates of the final quarterly figure had ranged from 0% to 0.6%, so the outcome was at the top of the range. Importantly, the 1.1% growth in the March quarter was left unrevised, despite a rise in the size of the trade deficit in March.
So, despite the warnings of the Jeremiahs, the economy did what the Reserve Bank said it would — it slowed, as mining investment and net exports fell, but the impact of the housing and apartment construction boom kicked in. Manufacturing made a big and surprise contribution as well. Accommodation and food services also had a strong quarter, despite a slight fall in real net disposable income in the quarter of 0.2%.
The terms of trade, which measures the value of Australia’s exports against the cost of imports, fell 4.1% during the quarter to be down 7.9% in the year to June. The drop mainly reflects softening commodity prices, especially iron ore and coal and some rural commodities. The fall in iron ore, in particular, has continued into the current quarter.
The outcome has no consequence for the RBA’s current policy of not making a change to official interest rates — a stance reaffirmed at yesterday’s September board meeting of the central bank. Nor did the data have any impact on the dollar, which was trading around 92.82 at midday. In his statement to last month’s meeting of the House of Representatives Economics Committee in Brisbane, Governor Glenn Stevens said “[d]ata for the June quarter suggest a ‘payback’ of lower exports, and also a period of more subdued consumer demand. There are relatively few readings for the September quarter as yet, though at least some suggest that there may have been a reasonable start to the quarter.”
In other words, the RBA believes the June quarter was always going to slow from the high levels of the three months to March. The central bank and some private economists believe growth could start accelerating again towards the end of 2014 and into 2015.
One other interesting thing from the data: the savings ratio dipped to 9.4% (both seasonally adjusted and trend) from 9.7% in the three months to March. That’s a further sign people are chewing into savings to consume, with the booming housing sector the main area of activity. It also confirms the sharp slow down in deposit growth in the banks and the increase in offshore borrowing.