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.
Frequently Asked Questions about this Article…
The Reserve Bank felt GDP releases the day after its board meetings sometimes made its interest-rate decisions look wrong, so it suggested the Bureau delay releases by a week. The Bureau resisted, saying its job is to supply timely figures to the public.
Australia’s annualised growth for the six months to March was about 2.25%, quarterly GDP grew 0.55%, and per‑capita GDP was rising at an annualised pace of roughly 0.5%—all signs the economy is growing but in low gear with significant slack.
The weak domestic demand and low growth increase the case for easier monetary policy. The article argues that if the RBA had access to the latest GDP data before its meeting it might have been more likely to cut the cash rate, though it doesn’t claim a cut was certain.
Mining export volumes recovered from cyclone damage and grew about 13% in the year to March, now making up 14% of GDP. But forecasters expect mining export volumes to average around 5% growth—likely insufficient to fully offset the expected large fall in mining investment or to create many jobs.
Domestic demand was flat and even fell in the March quarter, household saving rose to 10.5% of disposable income, and consumer spending grew only about 2% in the year to March. That suggests pressure on retailers, consumer services and cyclical companies and supports caution when investing in consumer‑exposed stocks.
Queensland led with about 2.8% growth, NSW grew about 2.4%, while Western Australia showed two consecutive quarters of slumping spending and is in recession. Victoria’s consumer spending grew only 0.8%—below population growth. State divergence matters for property, regional stocks and sector exposures tied to mining or domestic demand.
Total wages, salaries and fringe benefits rose just 2.7% in the year to March—down sharply from 7.7% a year earlier—while WA lost around 10,000 full‑time jobs and its unemployment rate rose from 3.7% to 4.9%. Hours worked increased but productivity remained weak, which can constrain consumer income growth and corporate revenue growth.
The article suggests a successful shift would likely need a substantial fall in the Australian dollar—to well under US$0.90—and a situation where higher import costs aren’t simply passed into wages. It notes the economy hadn’t reached those conditions yet.
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