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.
Sorry but for those of us who work and own business in the non mining export economy – the situation gets worse by the day. The exchange rate is killing the non mining export economy and these economic numbers for the 2nd quarter mask what is happening in tourism, education, services exports, and valued added manufacturing. These are the employment rich sectors of our export economy and the squeeze is on.
For most of this year employers squeezed hours worked and cut costs wherever they could. In the next six months it will be actual jobs that go. Many of these businesses are loaded up with debt taken on to keep things going in the hope that the inflated dollar would eventually correct. But it hasn’t and looking ahead I see 1.15 – 1.20 by year end.
Ross Gittins hasn’t a clue about the impact of foreign exchange beyond where to take his next overseas holiday or what to buy online. So quoting him as some sort of economic guru is just plain funny. Moreover, this an economist who on the one hand talks up the mining boom as being good and then trots out his Dick Smith inspired voodoo economics about the end of growth-based economies.
How in a universe defined by E=Mc2 – can there ever be an end to growth within any sort of time frame that matters to humans.
Meanwhile Australia is hell bent on becoming the only OECD nation that doesn’t make steel while proudly being the only major mining company that doesn’t have local procurement rules for major mining projects.
Old school manufacturing isn’t the main issue for the inflated high exchange rate – it’s tourism, education, knowledge services and high tech/value added manufacturing. That’s what’s going down the drain. So keep drinking the koolaid and believing the mining boom is working for Australia and let’s see where things are at 12 months from now.
Firing people is truly lots of fun – and the day Gittins, Dyer, Stevens and co get to enjoy such a task is the day I start taking notice of whatever they have to say about the economy. Meanwhile watch the dollar soar as our RBA chairman again opens his big mouth thinking the more he talks the more justification there is paying him a million dollars a year.
I’d love to know what planet they are measuring this from.
while all the world is suffering with falling housing prices
and everywhere the people fear political devices
right here within the Lucky Country nothing’s gonna fail ya
and that’s because as we all know our brand name is “Australia”
Our Brand Name is “Australia”
abarker… Im more interested in what planet ‘you live on’.
Copping a bit over the last few days, but hey, that’s the great thing about the net. Everyone gets an opinion.
GDP is rising? Sure, spending is rising but it’s because we’re getting slammed left right and centre by government charges and utilities rising, as well as Insurance costs increasing due to the floods. I can’t see how this helps the man on the street though. I did read something about it being due to inventories increasing but this doesn’t mean people are spending more, it means businesses are, maybe in anticipation of things being OK? All I can see coming from this is renewed hysteria around rates rising and scaring everyone back into a hole again.
If they ever came out of it in the first place.
If you’re not in Mining you’re getting screwed.