The Australian Bureau of Statistics today released the National Accounts, 92 pages of detailed statistics on the performance of Australia’s economy.
Growth in the economy in Q3 was slightly disappointing at 0.6%q/q – economists’ forecasts at the start of this week had averaged 0.7%, although these had been revised down as the various building blocks for today’s release came to hand earlier in the week. Still, this outcome follows healthy growth of 0.9%q/q in the June quarter (which was revised higher), so the economy maintained decent momentum through mid-year.
Favourable base effects from a year ago (recall that real GDP contracted this time last year), mean that GDP growth over the year rebounded a full percentage point to 2.8%oya, the fastest annual rate of expansion in the economy since early-2016. Importantly, this rate of expansion is broadly in line with official estimates of the economy’s potential, or trend rate of growth, meaning we no longer should be adding to slack, particularly in the labour market. Indeed, the unemployment rate fell during Q3, reinforcing this point.
The main contributors to growth last quarter were private non-dwelling construction, which added a whopping 0.9% points to GDP growth over the quarter. The investment upswing, it seems, is gathering pace. Exports, added another 0.4% points, but household consumption rose only modestly to add just 0.1% points. The main drags on GDP growth came from imports, up nearly 2%q/q, and from a small fall in home construction, albeit from record peaks. A large fall in public investment, which is lumpy by nature, shaved another 0.4% points off GDP growth.
By region, New South Wales was the best performing state, with state final demand growing by 1.0%q/q over the quarter. Western Australia’s previously shrinking domestic economy expanded by 0.9%q/q, but Tasmania contracted by 0.8%. All other states grew last quarter, but the ACT shrank by 1.0%. One caveat here is that exports and imports are not released by state, so only activity within each state border is available. Relative performance would be different if net trade flows were included, with WA and Queensland, in particular, being treated more favourably.
Encouragingly, the expansion in national output was broad-based in Q3 - all but three of the 20 main industry groupings expanded. The isolated falls were in farming and fishing, information media and telecommunications, and rental and real estate services. The fastest growth last quarter was in other services (up 2.2%), followed by electricity, gas and water, manufacturing, healthcare and mining.
The measures of price trends in the economy revealed some interesting dynamics. The terms of trade (ToT) - the ratio of export prices to import prices - fell slightly over the quarter, the second straight decline, albeit after four healthy rises. Despite the fall in the ToT, real per capita national disposable income, the best measure of living standards, grew in Q3, after falling in Q2. Meanwhile, disappointingly, productivity across the economy was unchanged in Q3, after a fall in Q2. The household saving ratio unexpectedly rose a touch to 3.2%, the first rise in five quarters.
One clear takeaway for directors is that the economy now finally is growing back in line with potential, pretty much as Reserve Bank of Australia (RBA) economists have been forecasting. So far, so good, on that score, then. If the RBA’s forecasts for next year are realised, which include a lower unemployment rate, rising wages growth, and even faster growth in the economy, interest rates probably will need to rise, just as they already are overseas. Indeed, while the RBA yesterday completed an inactive 2017 on the policy rate, officials are very unlikely to repeat this performance in 2018.