The government is touting its economic credentials after this morning’s national accounts data from the Australian Bureau of Statistics showed the economy accelerating in the March quarter, thanks to exports and the strong performance of the service sector.
The economy grew 1.1% from the December quarter’s 0.7% (revised up from 0.6%) with annual growth rising significantly to 3.1% from 2.8% in the 2015 calendar year (although that annual figure was revised down from the 3.0% first reported in the December quarter national accounts).
The growth was driven by a rise in exports, as well as a stronger performance in service-based industries. That means the economy continues to grow at or around its trend line of 3%. The result was well ahead of expectations — the market had been looking for annual growth of 2.8%, and the news had the Aussie dollar rise three-quarters of a cent to just under 73 US cents.
The economy was able to withstand the impact of a nasty slide in commodity prices early in the quarter, which helped push the terms of trade down nearly 2% across the three months — not to mention a rocky start to the year for local and global financial markets. It also withstood the continuing slide in mining investment: private gross fixed capital formation fell 2.2%, driven by falls in new engineering construction (-6.4%) and new buildings (-6.9%). That’s the tenth successive quarterly fall in new engineering construction spending as the end of the mining investment boom works itself through the economy.
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But the good news was that fall was almost offset by a 6.2% positive contribution from mining production, which contributed to the 4.4% growth in exports. In fact, mining has contributed significantly to growth in the past 15 months, powering the 0.8% (revised down from the 0.9% rise first reported) in GDP in the same quarter of 2015, and the 1.0% (revised down from 1.1%) in the September quarter of last year.
The ABS said that service based industries were the other big contributor to growth with finance and insurance (1.8%), retail trade, accommodation and food services (1.5%), and arts and recreation (0.9%) all increasing. Household spending rose 0.4%, unchanged from the December period.
The only slight concern is disinflation. “Broad based price falls were evident across the economy,” the ABS said, “as shown in the Consumer Price Index (CPI) which fell 0.2 per cent. The GDP price deflator, which shows the overall price movement in the Australian economy, fell 0.6 per cent in the March quarter.”
The terms of trade fell 1.9% after their 3.2% fall in the three months to December 31 in the March quarter and fell 11.5% through the year, which was a tiny bit better than the 12.0% fall recorded through calendar 2015. The net savings ratio was 8.1% in the quarter compared to the 7.6% reported in the December three months. And, importantly, trend real net national disposable income was flat — that’s a good sign compared to the negative territory that indicator has been in for some time. Next stop — wages growth?