Baton change remains out of reach
The Reserve suggested the bureau release the GDP figures a week later. The bureau was incredulous. Its job, it said, was to give the figures to the Australian public as soon as it could. If the Reserve finds them embarrassing, why can't its board meet a week later, when its deliberations would benefit from having the latest figures?
Indeed. Short of hubris, there is no reason why the Reserve has to make interest rate decisions on the first Tuesday of the month. If common sense ruled, and it waited another week, you suspect that its June meeting would have chosen to cut the cash rate.
Australia's annualised growth rate for the six months to March was just 2.25 per cent - way below potential, when the population is growing 1.75 per cent.
Several things in Wednesday's GDP figures are startling. In particular:
■ Domestic demand - total spending in the economy - did not grow at all in the first three quarters of 2012-13. In the March quarter, it went backwards, its first fall since the GFC. Adjusted for seasonal factors and inflation, it was $369.8 billion in the June quarter 2012, and $369.7 billion
in the March quarter 2013. It's a flat tyre.
■ Western Australia has joined the other AFL states in recession. We knew that it had lost 10,000 full-time jobs, that its unemployment rate has shot up from 3.7 to 4.9 per cent, and its retail sales have flattened. But Wednesday's figures show total spending in the west slumped for the past two quarters, as mining investment turned the corner and started heading down.
■ Wages - the total wages, salaries and fringe benefits of all Australian workers - grew by just 2.7 per cent in the year to March. That's down from 7.7 per cent a year earlier, and an average of 6.8 per cent over the decade. If true, that suggests that cash-strapped employers are finding ways to squeeze workers' wages - and maybe explains why workers feel so much animosity to the government.
■ And the good news: the volume of mining exports has finally recovered from past cyclone damage to grow by 13 per cent in the year to March. Mining exports now make up 14 per cent of GDP, more than all the spending of state and local governments.
Mining exports kept the economy growing in the year to March. Their contribution far outpaced that of consumer spending or mining investment. Non-mining exports grew just 0.7 per cent. Take out mining exports, and the rest of the economy grew by just 0.9 per cent.
So could mining exports be the economy's saviour in coming years, taking over the baton from mining investment? If Australia were the only producer on the planet, and China's demand kept swelling at its old rates, yes. But in the real world, the Bureau of Resources and Energy Economics forecasts mining export volumes to average 5 per cent growth. That won't match the size of the likely fall in mining investment, or provide many jobs.
Consumers won't save the economy. In the year to March, households saved 10.5 per cent of their disposable income, maintaining their post-GFC caution, while consumer spending grew just 2 per cent.
The state split was revealing. In Queensland, now Australia's fastest-growing state, it grew 2.8 per cent, in NSW 2.4 per cent, but in Victoria consumer spending grew just 0.8 per cent - well below population growth of 1.7 per cent.
Year on year, state final demand (total spending) grew 3.5 per cent in Queensland, 2.1 in NSW, but just 0.02 per cent in WA. It slumped 0.65 per cent in Victoria, 2.5 per cent in SA and 4.9 per cent in Tasmania. The two-speed economy now divides us between rugby states and AFL states.
WA, which dominated our growth in the mining boom, is hurting badly in the bust. The bureau's seasonally adjusted figures estimate that its investment fell by more than $2 billion in March, slicing
total spending in the state by 3.9 per cent.
Australia's overall growth was just 0.55 per cent for the quarter. Per capita, GDP is growing at an annualised pace of 0.5 per cent - less than in Japan. That's a lot of slack, making for low productivity growth.
Hours worked bumped up in the March quarter, so productivity didn't. Those in the construction industry may be surprised to learn that, on the bureau's estimates, annual costs rose just 1.9 per cent in engineering construction, 1.3 per cent in new housing, and fell by 0.1 per cent for other building.
We are growing, but in low gear. A precondition for a successful baton change from mining investment is a substantial fall
in the dollar, to well under
US90¢, and no pass-on of higher import costs into wages. We're
not there yet.
Tim Colebatch is economics editor.
Frequently Asked Questions about this Article…
The article says the Reserve Bank asked the Bureau to delay releasing quarterly GDP data because the figures sometimes made the Bank look like it had made the wrong interest-rate call. The Bureau refused, arguing it must publish promptly. For everyday investors this highlights how timing of official data can affect market expectations and monetary policy decisions — and that the RBA might have made a different call (the piece suggests it could have cut rates) if it had had the latest GDP before its meeting.
Australia’s annualised growth for the six months to March was reported at 2.25%, which the article describes as well below potential given population growth of about 1.75%. Quarterly growth was only 0.55%, and per‑capita GDP was growing at an annualised pace of 0.5%, which the article notes is lower than Japan — signalling a lot of economic slack.
Domestic demand (total spending) didn’t grow across the first three quarters of 2012–13 and actually fell in the March quarter — the first fall since the GFC. Household saving remained high at 10.5% of disposable income while consumer spending grew only 2% year to March. For investors, weak domestic demand and cautious consumers can weigh on retail and domestically focused businesses and signal slower earnings growth.
Mining exports recovered from cyclone damage and grew 13% in the year to March, and they now account for about 14% of GDP — more than all state and local government spending. The article says mining exports kept the economy growing, and without them the non‑mining economy grew just 0.9%.
The article is sceptical. While mining exports are strong, the Bureau of Resources and Energy Economics (BREE) expects mining export volumes to average about 5% growth — the article says that likely won’t match the scale of the fall in mining investment and won’t create many jobs, so exports alone won’t fully replace lost investment activity.
The article highlights a two‑speed economy: Queensland grew about 2.8% (state final demand +3.5% year‑on‑year) and NSW about 2.4% (+2.1%), while Western Australia’s total spending essentially stalled (about +0.02%) and has slumped in some AFL states. Victoria’s consumer spending grew only 0.8% (below population growth of 1.7%). Regional performance matters for investors focused on property, resources or retail exposure in particular states.
Total wages, salaries and fringe benefits grew by just 2.7% in the year to March — down from 7.7% a year earlier and below the decade average cited in the article. The piece suggests this restrained wages growth may reflect employers squeezing costs and helps explain weak household spending and ongoing caution among consumers.
The article argues a successful shift requires a substantial fall in the Australian dollar (to well under US$0.90) and no pass‑through of higher import costs into wages. A lower dollar would make exports more competitive; without that and without stronger domestic demand, mining exports alone can’t drive a broad‑based recovery — and the article says Australia wasn’t there yet.
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