The Australian economy has surprised with a sharper than expected slowdown in the final months of 2008, growth falling as Australia joined its major trading partners in negative growth.
The Australian Bureau of Statistics said this morning that fourth quarter gross domestic product growth fell a much larger than expected 0.5%, after the 0.1% rise in the September quarter.
It was the first contraction in growth since the same quarter of 2000, a figure that came in the wake of the introduction of the GST. Australia returned to growth in the first quarter of 2001.
The larger than expected fall pushed the Australian dollar down under 63 US cents for a while, a loss of almost a cent; and pushed losses on the ASX past 2%. They are now back under that level.
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The fall means that if the economy contracts this quarter, as many are expecting given the slumping demand for exports and rising unemployment, we will be in an official recession: the first since the early 1990s and ending around 18 years of continuous growth.
The non-farm sector fell 0.8% (farming contributed 0.3%). The main drags on the economy were a slump in manufacturing, which lopped 0.5 percentage points off the quarterly growth rate, while property and services subtracted 0.3 percentage points.
Analysts in a Bloomberg survey had expected the economy to grow by 0.2% in the fourth quarter, as had other forecasters after the mixed flow of data on investment, government spending, trade, construction and inventories for the quarter in the past week. The fall left growth for the year up 0.3%, less than the 1.2% increase according to analysts.
The slump came a day after the Reserve Bank left interest rates on hold as it waited to see what the 4% cut in rates and large stimulus packages had delivered to growth. The central bank justified a decision to leave interest rates unchanged in part because the economy had not “experienced the sort of large contraction seen elsewhere”.
It still hasn’t, compared to Japan, Taiwan, Canada (overnight, a fall of 0.8%), the UK, Germany and the 1.6% quarter on quarter plunge in US (6.2% annual rate).
The ABS said consumer spending rose 0.1% in the quarter: in seasonally adjusted terms, the largest negative contribution was from Inventories (-1.6 percentage points), offset by positive contributions from Imports (1.7 percentage points) and Private business investment (0.2 percentage points).
In seasonally adjusted terms, the main industry contributors to the fall in GDP in the quarter were Manufacturing (-0.5 percentage points), Property and business services (-0.3 percentage points), and Wholesale trade (-0.2 percentage points). This fall was partly offset by a positive contribution from Agriculture, forestry and fishing (0.2 percentage points).”
The December spending package had an impact on retail sales in December and January (up 3.8% and 3.2% respectively) and on home loan approvals and new home starts and sales, according to figures over the past few days. Gross disposable household income increased by almost 6% in the quarter as a result of the December spending package.
Without that contribution, consumption would have been lower and the slide larger..
Tomorrow we will see the impact on building approvals for January and if there was any push to lift imports of consumer goods with the trade account numbers for the same month.
The ABS said that in seasonally adjusted terms, real gross domestic income fell by 1.2% in the December quarter, while the volume measure of GDP decreased by 0.5%, reflecting a decrease in the Terms of trade. The Terms of trade fell 2.8% in seasonally adjusted terms in the December quarter following a 6.2% increase in the September quarter.
“During the December quarter, trend Real net national disposable income increased by 1.0%, with growth over the past 4 quarters at 6.4% compared to 0.6% for GDP. In the December quarter, in seasonally adjusted terms, Net exports contributed 1.5 percentage points to GDP growth. The fall in the volume of imports had a significant positive impact on GDP as a greater proportion of expenditure was on domestically produced rather than imported goods and services.
“The Savings ratio was 8.5 in seasonally adjusted terms in the December quarter 2008. This seasonally adjusted number is the highest since September 1990.”
In a speech in Sydney before the growth figures were released, The RBA’s head of economics, Dr Malcolm Edey said:
“Based on the information available to date, we estimate that GDP in Australia’s major trading partners contracted by 1½ per cent in the December quarter. The falls in output were widespread, but they were particularly pronounced in the Asian region,” Dr Edey said in his speech.
“Output in Japan fell by 3 per cent in the quarter, and contractions of the order of 6 per cent were recorded in Korea, Taiwan and Thailand. China’s economy continued to grow, but at a much reduced pace. For the smaller Asian economies, these recent falls in output are comparable to what occurred in the 1997 crisis period. For Japan, it’s the biggest fall since 1974.”
“Australia is being affected by these events. The international deterioration has been so abrupt that it won’t be possible to avoid some short-term weakness here.
“Nonetheless, Australia came into this period with better momentum than most, and with more scope than most to take expansionary policy measures. That scope is being used. The transmission channels are working, and we can expect the measures that have been taken will increasingly support demand as the year goes on.”