For a government desperate to focus — when its own infighting pauses long enough to give it some clear air — on “growth and jobs”, today’s GDP data for the June quarter from the Australian Bureau of Statistics is the last thing it needs. The economy grew just 0.2% in the three months to June, seasonally adjusted, and a total of 2% in the 2014-15 financial year, well below the (revised) March-quarter result of 2.4%. And nominal GDP growth was just 1.8% — the lowest growth in nominal GDP (which is important in terms of the revenue side of the budget) for 53 years.
It was the poor performance of the trade account in the quarter, after three successive quarters of supporting growth (especially in the March quarter), that inflicted the most damage on growth — it reduced growth by 0.6%. Solid contributions from consumers and households, and government spending (there was a sharp jump in government spending, but it was actually a Defence order for three warships) prevented the economy from dipping into the red — and prime among those factors was the continuing housing boom, which is still helping the economy’s long and wobbling transition from the resource investment boom. The financial, transport and health sectors all chipped in 0.1 points to GDP growth, and there was a solid outcome on the savings rate — 8.8%, seasonally adjusted and 8.6% in trend terms.
But the broader story, of course, is that the mining boom has so far not been replaced by anything except residential construction and the occasional warship, exacerbating the slump in commodity prices. Mining production fell in the quarter, along with exports. And as the ABS notes, “this quarter continues to see the decline in mining related construction (Engineering construction -0.8%), which is reflected in the decline in Construction Gross value added (-0.6%).”
The news didn’t send the sharemarket any lower than the 1.2% drop in the first 90 minutes of trading after the big falls on world markets overnight off the back of weak manufacturing data from China (which was partly responsible for the weak GDP performance in Australia). But the news sent the Aussie dollar into a series of new six-year-plus lows as the currency fell under 70 US cents (against the US dollar).
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After the unexpectedly strong March-quarter GDP result of 0.9% (which hasn’t been revised down, fortunately, or the growth figure would have had a 1 in front of it), a triumphant Treasurer Hockey derided commentators who had suggested the economy was significantly slowing, or even headed for recession, as “clowns”. It now seems the clowns have been, at least partly, vindicated.
The poor result will put further pressure on Hockey, already the target of internal critics who want him gone from Treasury, and sour the government’s pitch in the crucial Canning byelection less than three weeks away, on which Tony Abbott’s leadership may well hang.