The Australian economy isn’t dying, it isn’t in need of a rate cut to halt a slide towards a recession, it isn’t suffering from a lack of spending or demand: in fact it’s in rude health, which will continue to improve over the next few quarters as the shockwaves of the floods and cyclones in the March quarter continue to dissipate.
So let’s get rid of the “woe is us, the sky is falling, times are tough” mindset that pervades much of current commentary from business and many in the media (Alan Jones, come on down) and take a cool, hard look at the real Australian economy, courtesy of the June quarter national accounts.
The accounts, released this morning by the Australian Bureau of Statistics show a 1.2% rebound in the second quarter, and a substantial revision to that initially reported nasty 1.2% fall in the three months to March.
That’s now a fall of 0.9% as the impact of the floods in Queensland in particular were not as bad as first estimated.
Overall the 1.2% rise in the quarter was just above the 1% of most market forecasts (a few were about 1.2%.) Non-farm, income rose 1.2% as well after falling 1% in the first quarter.
In fact, the growth figures were a more broad-based rebound (unlike the March quarter when it was a supply shock to the coal mining industry in Queensland in particular), stood out.
While some parts of the economy are weak and some states are weak, the growth and its make-up belies the weak business and consumer confidence data.
Exports were negative as shown in the current account data, but the 0.5% negative contribution was sharply down from the 2.4% reported for the first quarter.
So if the floods hadn’t hit the coal industry, as well as iron ore in WA and agriculture, (especially bananas) some other industries in late 2010 and the first quarter of this year, the economy would have been soaring with growth probably running at or above 4%, with inflation worrying the Reserve Bank at night and one rate rise under our belts and another to follow later this year.
Instead the economy is recovering strongly from the first-quarter shock, which doesn’t seem to have been so shocking now, inflation might be a bit softer, and those worrying events in Europe and the US has allowed the RBA to sit on rates and give us the longest period without a rate rise for five years or more.
Overall the GDP figures and the way it happened was better than some might have expected (as Crikey pointed out on Tuesday), with solid contributions from inventories, household spending, mining and even manufacturing.
The terms of trade jumped 5.4% in the quarter, after a 5.8% rise in the first quarter, while real gross domestic income grew 2.6% for the quarter. For the year to June, the ABS said the rise in real gross domestic income of 6.5% was “the largest growth since 1987-88”.
That’s been driven by the continuing surge in the terms of trade, which the ABS said today “has more than doubled over the past decade, rising from an index number of 60.5 in the June quarter 2001 to 122.6 in June quarter 2011”.
Growth for the 2010-11 financial year was 1.8%, according to the ASB and 1.4% through the year.
Household consumption rose 1% in the quarter and was up 3.2% over the year to June, (seasonally adjusted), slightly slower than the 3.4% rate in the first quarter. With retail sales weak, other areas of consumption have been strong, such as car sales and overseas travel, as Crikey pointed out yesterday.
The 1% fall in dwelling investment was a standout, but not unexpected given the decline in building approvals in recent months and home lending.
There are quite a few commentators and business economists who will have to recast their views of the economy as a result of these figures. The only one who can hold his head high among the economics writers in the media is Ross Gittins of The Sydney Morning Herald, who didn’t joined the Henny-Penny club and attempted to look through the difficult first quarter data and subsequent figures.
An interest rate cut is still possible, but that will only occur if the events in Europe are so threatening that the RBA needs to protect the economy from the incoming shock, as it did from 2008 to 2009.