Strictly speaking, the Australian economy just grew by 0.1% in the September quarter, kept in the black mostly by the recovery in rural Australia from the terrible drought of the past couple of years (which remains in much of the country).
But in reality it went backwards with non-farm GDP shrinking 0.3%, according to ABS figures from the September quarter’s National Accounts.
The news means that those economists tipping negative growth like Goldman Sachs JBWere missed. But there is no joy whatsoever from these figures except that there are better times in some parts of regional Australia with higher grain harvests forecast.
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So will the belief of some economists that the economy’s woes have deepened since September 30 be vindicated early next March when the December quarter GDP figures are released? Or will the $10.4 billion 0.8% of GDP stimulus package and the 3% cut in the cash rate by the Reserve Bank, kick in to give us another small, positive growth quarter?
Either way, the economy is close to stalling and the downward pressure from the global recession from April onwards will be enormous as iron ore and coal prices fall by over 30% and more and depress our terms of trade and national income: deflation and falling growth could be the big news story from April through December next year.
Monday’s manufacturing index for November told us this quarter was tough with falls to a record low, this morning it was the same index for our bigger services sector. The news was again bad, another record low. The Australian Industry Group-Commonwealth Bank of Australia performance of service index fell 4.3 points to 37.8 points in November, the weakest reading since the monthly series began in 2003.
The drop from 42.1 points in October in the economy’s most important sector illustrates the extent of the slowdown here and offshore. The index has been below the 50 point level that separates growth from contraction since April, but lurched downwards in November, as the manufacturing index did.
The index readings for services sales, new orders and employment all fell to record lows in November, with all sectors and states reporting a decline in activity.
Both surveys have made the GDP figures a bit historical, but they nevertheless send a message of an economy slowing. Nothing since September 30 has altered that assessment.
The 0.1% rise, seasonally adjusted, was down from a revised 0.4% gain in the June quarter (0.1% originally).
The result was the weakest since December 2000. Analysts expected a 0.2% increase for the quarter. Annual growth for the July-September period came in at 1.9%, weaker than the previously reported 2.7% rise for the June quarter. The yearly outcome matched analysts’ forecasts.
The Reserve Bank yesterday sliced 1% from the cash rate to 4.25%; these figures ensure another rate cut will come next February with the market already pricing in a 0.75% chop.
Looking at some of the detail, household final consumption tells the story: Australian consumers stopped spending in a big way in the quarter.
With the café latte set on strike and the fang gang no longer interested in eating out, Australia stands at the precipice.