Growth running below trend
Figures released on Wednesday showed an annual growth rate of 2.6 per cent, slightly above analyst predictions of 2.4 per cent. It confirmed the economy has been growing at a "below trend" pace for the past year (trend growth is 3 per cent).
It is the main reason why the unemployment rate has crept up from 5.1 to 5.7 per cent in the past year.
"In a sense that's what trend growth actually means, it means a growth rate that's enough to stop the unemployment rate from rising," Bank of America Merrill Lynch chief economist Saul Eslake said.
"If you want to take a message out of that, it means that whoever wins the election shouldn't be too dogmatic about returning the budget to surplus quickly."
Bureau of Statistics figures showed the economy grew by 0.6 per cent in the three months to June 30, seasonally adjusted, which was slightly higher than expectations of 0.5 per cent growth.
It came a day after the Reserve Bank kept interest rates at historic lows, and left scope for further cuts if economic activity, inflation, or unemployment worsened.
The GDP figures provided that final piece of the statistical puzzle that allowed economists to summarise the past 12 months of economic activity, and to make their projections for future economic growth.
And a breakdown of the figures showed economic growth was spread unevenly across states and territories.
Over the past year, NSW (1.3 per cent), Queensland (1.8), and the Northern Territory (6.6) recorded growth, while Victoria stagnated (0.1).
South Australia (minus 1.4 per cent), Western Australia (minus 1), Tasmania (minus 2.5) and the ACT (minus 1.1) all contracted.
"[It] doesn't really dispel fears that the economy is struggling with its transition away from mining investment," St George chief economist Besa Deda said.
"But it's not all doom and gloom. I think we're just stuck in this below-trend part of growth and we just need to see a bit more in the non-mining part of the economy to be encouraged that we'll get back up towards trend."
The GDP figure is backward looking, providing a snapshot of economic activity that has already taken place.
But forward-looking indicators provide an idea of the type of activity Australia can expect to see in the coming year.
And an important indicator of future economic activity is the number of building approvals. That's because it shows how many dwellings people are planning to build.
Economists say the housing sector is one of the only non-mining parts of the economy that is showing any signs of life.
The most recent building approval figures jumped 10.8 per cent to be above 170,000, which has not happened all that often since the stimulus-driven boom in 2009. That followed another strong figure in April.
"I think there is increasing evidence that the housing sector is stirring," Mr Eslake said.
But business confidence, which in some cases is a leading indicator, is weak.
Reserve Bank governor Glenn Stevens said on Tuesday the dollar had dropped 15 per cent in value since early April. "It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy," he said.
Frequently Asked Questions about this Article…
Australia’s annual GDP growth was 2.6% over the past year, slightly above analyst forecasts but below the economy’s trend growth of about 3%. For the quarter to June 30 the economy grew 0.6% (seasonally adjusted), a touch above expectations of 0.5%.
The economy has been growing at a below‑trend pace, meaning growth isn’t strong enough to prevent job losses. Over the past year unemployment rose from 5.1% to 5.7% — a pattern economists say is consistent with growth that is weaker than the trend needed to stabilise employment.
The RBA kept interest rates at historic lows and signalled there is scope for further cuts if economic activity, inflation or unemployment worsens. So further rate easing remains possible depending on upcoming data.
Growth is uneven: over the past year the Northern Territory led with 6.6%, Queensland 1.8% and NSW 1.3%. Victoria barely grew (0.1%), while South Australia (-1.4%), Western Australia (-1.0%), Tasmania (-2.5%) and the ACT (-1.1%) contracted.
Building approvals — a forward‑looking indicator of future construction — jumped 10.8% to above 170,000, suggesting the housing sector may be starting to stir. Economists view housing as one of the few non‑mining areas showing signs of life, which could help future growth.
No — the article notes business confidence is weak. Since business sentiment can be a leading indicator for investment and hiring, weak confidence may limit near‑term non‑mining growth.
The dollar has dropped about 15% in value since early April. Reserve Bank governor Glenn Stevens said further depreciation could help rebalance growth by making Australian exports and non‑mining sectors more competitive, which may support a recovery outside mining investment.
Economists quoted in the article (including Bank of America Merrill Lynch’s Saul Eslake) suggest policymakers should be cautious about pushing quickly back to budget surplus. With growth below trend and unemployment rising, there’s a case for measured fiscal support rather than an immediate, dogmatic return to surplus.
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