Aussie economy grows for 31 consecutive quarters

National accounts

• Record expansion: Australia’s record economic expansion is now well into its 28th year. The Australian economy grew by 0.2 per cent in the December quarter (survey: +0.3 per cent) after growing 0.3 per cent in the September quarter. Annual economic growth fell from 2.8 per cent to 2.3 per cent (survey: +2.6 per cent).
• Contribution to growth: The biggest contribution to growth came from government consumption (+0.3 percentage points); from household consumption (+0.2pp); and inventories (+0.2pp). Dwelling investment (-0.2pp); Ownership transfer costs (-0.1pp) and net exports (-0.1pp) detracted from overall economic growth during the quarter. Public and business equipment investment were flat.
• Income: Real gross national income rose by 1.1 per cent in the December quarter to be up 3.5 per cent on the year. In nominal terms GDP increased by 1.2 per cent in the quarter and rose by 5.5 per cent over the year.
• Productivity: Gross value added per hours worked in the market sector fell by 0.2 per cent in the December quarter, but was up by 0.8 per cent on the year. Hours worked in the market sector were flat in the December quarter and were up by 0.6 per cent on the year.
• Industry sectors: Twelve of the 19 industry sectors expanded in the December quarter. Strongest growth was by Arts & recreation services and Information media and telecommunications (both up by 2.5 per cent), followed by Public administration and safety (up by 2.4 per cent). Health care and social assistance rose by 2.3 per cent and added 0.2pp to GDP growth. Four sectors added 0.1pp to growth while four sectors, including Agriculture, forestry and fishing; Manufacturing; Construction; and Professional, and Scientific and technical services cut 0.1pp from overall GDP growth during the quarter.

What does it all mean?

• Back in October last year Australia featured on the front cover of The Economist magazine under the headline “Aussie Rules: What the world can learn from Australia”. The editors gushed that “rising incomes, low public debt, affordable welfare state, support for immigration and broad consensus for policies is a distant dream in most rich countries”. At the time, some commentators argued that it was ‘the kiss of death’ as far as Australia’s record-breaking run of economic growth was concerned. Not so, while annual growth was the slowest in 18 months in the December quarter, the Australian economy has now expanded for 31 consecutive quarters.
• The Reserve Bank had already warned yesterday that our economy “slowed over the second half of 2018”, but its base case is for “the Australian economy to grow by around 3 per cent this year”.
• That said, Governor Philip Lowe said earlier today that the relationship between labour markets and economic growth data had become more difficult to decipher, noting that “in a number of countries, including our own, there is growing tension between strong labour market data and softer GDP data. We are devoting significant resources to understanding this tension.”
• While economic growth fell to below trend levels in the December quarter, inflation is contained, the jobless rate is at 7½-year lows and interest rates remain at record lows.
• While global growth is expected to stabilise later this year – perhaps assisted by supportive central bank policy, infrastructure spending and an improvement in US-China trade relations – the domestic economy is facing some headwinds. Most notably, household spending is subdued – due to slow wages growth and falling property prices – and residential dwelling construction is falling. If growth remains below trend, increased spare capacity in the labour market may increase unemployment.
• That said, the Australian government’s enviable fiscal position will enable it to cut taxes with a Federal election on the horizon, boosting household spending and there is a significant pipeline of public sector infrastructure works in place, given solid population growth.
• And the Reserve Bank is hedging its bets, remaining patient, but is able to reduce interest rates, if required. Despite this, business investment should support continued hiring of labour in the near term, sidelining policymakers for the foreseeable future.