Australia | Dec 01 2010
By Greg Peel
“The data is certainly a wake-up call to those focusing unduly on the mining boom and neglecting the other 90 per cent of the economy,” says Craig James, CommSec's celebrity economist.
CommSec's anecdotal research had told the economists that the Australian economy had been very patchy, and today's GDP result both backs up that evidence and gives weight to arguments that November's RBA rate rise was unnecessary.
Australia's GDP grew by only 0.2% in the September quarter, below consensus forecasts of a 0.4% gain. More alarming was the annual GDP growth rate's fall to a below-trend 2.7% following downward revisions to the GDP results of both the March and June quarters. March was revised down to 0.6% from 1.0% and June to 1.1% from 1.2%.
It's been a long time coming, but Australia was “saved by the farm” in September. Improved conditions saw farm GDP surge 21% to offset the disappointing fall in all non-farm sectors of a net 0.2%.
In output terms, agricultural grew 18.5% while mining fell 0.7%. The services sectors stood still while manufacturing managed only 0.1% growth. The big employment sectors of retail, construction and health services all went backwards. Of 19 sectors in total, 11 contracted.
Construction remains a mystery, with last week's construction work done figures being at odds with both the later capital expenditure data and now the GDP breakdown. Westpac also notes that while consumer spending growth apparently slowed sharply to 0.6% from 1.4% in June, retail sales only slowed to 0.7% from 1.0%.
Westpac believes the drop to 0.2% growth in September from 1.1% growth in June “exaggerates the underlying trends”. The economists suggest that over time we'll see positive revisions after this set of negative revisions.
There's a lot hinging on the resource sector of course. After rising 5.9% in June, exports fell 2.4% in September. Westpac nevertheless notes volatility of gold shipments impacts on these numbers. ANZ points out real gross domestic income grew 7.8% in year-on-year terms, which is a higher growth rate than any achieved in the pre-GFC commodity boom. This should “keep the strong outlook for mining intact”.
The impact will not, however, be felt until mid-2011 such that FY12 will be when we see above trend growth, suggests ANZ. CommSec is forecasting 3.25% GDP growth for 2011, which is on-trend. Which leads us to interest rate expectations.
Clearly there won't be an RBA rate rise next month – the central bank has already suggested 2011 at the earliest. The rate rises ahead of the September quarter clearly had an impact, and we had another one last month. ANZ suggests growth will probably thus remain subdued for 3-6 months, and CommSec agrees the economy will probably stay “stuck in third gear” in the short term. ANZ was looking for the next rate rise to come in the June quarter next year but now suggests it may be later.
On the plus side, the terms of trade are up 24% in the year. This feeds into incomes and profits. Capital expenditure intentions are also strong. On the minus side, retail continues to struggle with deflation and the impact of the last rate rise, and the government stimulus of public spending is now fading in effect. The private sector has to pick up from the public sector, which ANZ suggests should happen in late 2010 or into 2011.
I'd like to throw what I consider to be a potentially significant factor into the mix which I don't think has been given much mention other than in passing. If you're in Sydney, look out the window. If you're anywhere else in which by some miracle it's not raining at the moment, look at the longer range weather forecast. While stock analysts have raised the issue of weather risk, all corporate outlooks I have read of late refer to expectations of weather “normalisation”, or at least provide caveat of normal weather assumptions. La Nina is not to be taken lightly. The last time we had an La Nina event mines were flooded across the country and goods transport disrupted. Never mind the impact on retail. And our farmers are once again in despair – this time over too much rain rather than no rain.
But we can still feel impressed with ourselves, according to CommSec, which notes that the 0.2% GDP increase in the September quarter represents entry into Australia's twentieth year of consistent annual economic growth. Who else can boast such a result?