No more rolled gold GDP

GDP rose 0.6 per cent for the June quarter and 3.7 per cent for the year. It is yet another great economic indicator, simply because GDP growth is required for job creation, rising incomes and social harmony.

The GDP data was driven by solid growth in household spending, a contribution for net exports, government demand and business investment. Growth was dampened by weakness in company profits, inventories and a further fall in the terms of trade.

The policy implications from the GDP result are limited. This is because the June quarter print was boosted by one-offs of higher spending associated with the carbon compensation and what looks to be a bringing forward of some government spending into 2011-12.

Indeed, working on the estimate that around half of the 0.6 per cent rise in June quarter GDP was the direct result of the household sector spending its carbon compensation payments in May and June and the government boosting demand as it shuffled spending out of 2012-13 and into 2011-12, the September quarter GDP growth rate will almost certainly be less than 0.5 per cent and could be flirting with zero.

And we already have a few clues about the September quarter. Retail sales, building approvals and job ads are down. Housing credit growth slowed to a record low in July and the inflation pulse is moderate, even allowing for the carbon price impact.

Since June, commodity prices have fallen sharply, which will build on the 10 per cent fall in the terms of trade since the middle of 2011. This is cutting national income and dampening personal and business income. Interestingly, the GDP deflator (a measure of national income) is negative over the past year.

The June quarter GDP result might be the last bit of rolled gold good news for a while. Let's hope the RBA realises this, for it does it will be cutting rates quite aggressively over the next six months. And when this happens, it will take the Australian dollar down with it.