The Australian economy grew by a seasonally-adjusted 0.7% in the last quarter of 2010, according to the ABS’s national accounts release this morning. Annual growth for 2010 was 2.7%. That puts paid to suggestions that the impacts of floods and cyclones in the current quarter would combine to produce a technical recession. Trend growth was 0.5%, but non-farm GDP grew by an unexpectedly strong 0.8%.
Australia’s terms of trade grew further in the December quarter, by 1.1%, but Australians are continuing to save at historically high rates, with household savings at 9.7%, which may be where it will stick for some time. Prices were also flat, and real labor unit costs actually fell.
And the impact of government spending continues to fade — down to 0.2% contribution to growth in December. The big contributors were inventories and capital equipment and there was a strong performance by the professional, scientific and technical services and construction — though not commercial property, which had a shocker and reduced growth.
The rise in inventories reflects the change in consumer behaviour occasioned by a significantly higher savings rate, because we’re simply not buying as much as we used to. That doesn’t mean we’ve stopped buying altogether, just that we’re a lot more selective and much more focused on the best bargain. So smart retailers are still making money, while others are now being put to the test by this secular shift in consumption patterns.
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In January there was a lot of talk about the current quarter producing negative growth under the impact of the floods and the cyclones. The poor performance of retail in the December quarter had some economists suggesting we might see negative growth in the December quarter and a technical recession. But in retrospect it was the September quarter that was the low point of the post-GFC economy — the ABS revised growth in that quarter down to a bare 0.1%, meaning the December quarter represented a significant recovery. Yet again, the Australian economy has displayed unexpected resilience, particularly in producing such a strong non-farm GDP number.
In short, this is a healthy economy with few inflationary or wage cost pressures. And the floating dollar and our high savings rate have provided a buffer against the impacts of the vast revenues generated by high commodity prices. In short, this is just what the RBA wants — although whether it would have lifted rates right at the end of last year if had known the September quarter was so flat will remain one of the more intriguing mysteries of contemporary politics.