Good news for Australia; the Goldilocks economy has seen off another Bear; or is it too early to boast?
Some commentators have likened Australia and its economy to Goldilocks’ perfect porridge: not too hot, not too cold. But that’s not all that far from the truth after the release of surprisingly good March quarter figures today showing a 0.4% rise in Gross Domestic Product.
Although compared to the likes of the US, Japan and Germany, we are positively ‘hot’ (in growth terms).
It was supposed to be a recession, the Global Financial Crisis has certainly crunched us (just ask sharemarket and super fund investors); the Global Recession has ended the resources boom, but is helping us tame inflation, unemployment has risen from a low of 3.9% to 5.4% in April. It wasn’t supposed to end up with positive growth and growth of 0.4% at that.
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The figures don’t lie, do they?
And yet for most of the first four months of the year it seemed as though we were heading for our first recession for nearly 20 years. And then something turned. March retail sales were stronger, building approvals kicked higher, car sales proved to be a bit better than expected and unemployment took a turn for the better in April (admittedly off an odd sample).
Sentiment changed as the rebound in global markets accelerated.
Stories even this morning on how it was really a recession because the domestic part of the economy was sluggish now look very odd. Yes we’ve had a slowdown, but no, it’s not as bad is it looked six weeks ago and when the December national accounts were released in early March.
Growth of 0.4% in the March quarter and non-farm growth up 0.8%, and through the year to the end of March, GDP up 0.4%, while non-farm growth was flat, eliminating the decline seen in the December and September quarters.
All this when the rest of the world (outside of China, India and some smaller economies) were being battered by the crunch and recession like they have not been battered for 60-70 years.
To look at it another way, the OECD has estimated that first quarter growth in its 30 member economies (including Australia) and the four major non members fell 2.1% in the March quarter. We are a long way from that.
The US, Japan, Europe and the UK all saw their economies contract by 1.9% to 4%: nasty falls all. And, instead of experiencing our first recession for almost 20 years, we seem to have avoided it and remain on track for a financial year of positive growth.
And that clacking noise is the sound of hundreds of abacuses around the country (including mine) being used to re-work growth figures for the year to June and for calendar 2009. Many had growth falling, some no doubt will still have it there, especially if unemployment is found to be rising
For that to be achieved, the economy would have to fall very sharply from about now on. But retail sales for April rose a solid at 0.3% and building approvals jumped by more than 5% (and 7.2% for private homes as the first home owners/building grant kicks in) and will support a lot of domestic demand for the next year.
Interest rates will remain on hold: the Reserve Bank now has firm evidence of what the lower interest rates and the government stimulus spending can (and has) achieved. There are billions of dollars in new spending yet to flow on in infrastructure.
The growth figures vindicate the two ‘cash splashes’ from the Federal Government and the expansionary budget (could there now be too much spending on its way though?).
But if the fall in labour costs and the expected drop in inflation do have the positive impact the RBA hinted at in its post board meeting statement yesterday, then one or two more rate cuts are not out of the question. But these growth figures will given the RBA room to pause for longer on rates.
The big imponderable is the value of the Australian dollar. It reached over 82 cents in offshore trading Tuesday night and was trading around 82.25 US cents at midday.
If it continues to go higher it will reduce the external pressures on inflation, but undermine export income at a time when prices for our major commodities (and the ones that helped give us the March quarter ooomph) have fallen.
The ABS also pointed out that revisions to the September quarter figures produced GDP growth of 0.2% instead of 0.1% as reported, but lifted the fall in growth in the December quarter to 0.6%, from the reported 0.5%. So the changes netted each other out.
“There are quarterly revisions due to the incorporation of more up-to-date source data and changes to seasonal adjustment factors. The overall effect of these revisions has been to decrease growth in the seasonally adjusted volume measure of GDP in December quarter 2008 by 0.1 percentage points, and to increase September quarter 2008 growth by 0.1 percentage points.”
And, to make it even more baffling the terms of trade fell a very nasty 7.8% (2.8% down in the three months to December) and real gross domestic income dropped 1.4% after falling 1.2% in the December quarter.
The contribution from farms, manufacturing and property fell, retailing was stronger. In all a mixed set of national accounts.
If these were the results of a junior auditor in looking at the annual accounts of a company, they would be sent back to be redone, and with a please explain.
So what happened, where did the recession go to? From an early look at the figures, it was a combination of the dying days of the resources boom finally producing an explosive growth in export income, at a time when the domestic slowdown (can we call it a recession now?) belted imports down more sharply.
In one respect growth resulted from the size and the extent of the domestic slowdown in demand for imports, helped by lower oil prices, which had a positive impact on the growth figures.
The ABS explains:
“In seasonally adjusted terms, the main positive contributors to expenditure on GDP was Imports (1.6 percentage points), Exports (0.6 percentage points) and Household final consumption expenditure (0.3 percentage points). The largest negative contribution came from Private business investment (-1.1 percentage points)
In seasonally adjusted terms, Manufacturing and Property and business services both detracted 0.3 percentage points from GDP growth, while Construction detracted 0.2 percentage points.
“Household final consumption expenditure increased 0.6% in seasonally adjusted terms. The main positive contributors to growth in seasonally adjusted terms were Clothing and Footwear (up 1.8%) and Food (up 1.1%). The main negative contributors in seasonally adjusted terms were Purchase of vehicles (down 1.4%) and Furnishings and household equipment (down 0.8%). ”
“Private business investment decreased 6.1% in seasonally adjusted terms largely reflecting a decrease in Machinery and equipment investment (down 9.6%). Dwelling investment showed a decrease of 5.6% this quarter due to a decrease in New and used dwellings (down 6.3%) and a decrease in Alterations and additions (down 4.8%).
“Total inventories fell by $3,836m in trend terms and $3,351m in seasonally adjusted terms. Changes in inventories had no impact on GDP growth during the quarter.
Exports of goods and services rose 0.4% in trend terms and rose 2.7% in seasonally adjusted terms. Seasonally adjusted Exports of goods rose 2.8%, with a fall in Non-rural (down 1.1%) offset by a rise in rural exports (up 18.3%). The fall in Non-rural exports reflected falls in the exports of Transport equipment (down 25.2%) and Coal (down 12.9%).
“Imports of goods and services fell 6.1% in trend terms and fell 7.0% in seasonally adjusted terms. Seasonally adjusted Imports of goods fell 8.6%, with falls in Consumption Goods (down 10.3%), Intermediate goods (down 10.3%) and Capital goods (down 7.1%).”
Simple isn’t it? We consumed less, the resources boom stopped, companies in this sector cut investment and capital equipment orders and oil prices fell: and that helped drive down our import bill while we managed three solid months of export performance, plus a dollop of government stimulus and a few odds and sods thrown in.