<html><body>
<p><strong>Expert Observer</strong></p>

<h2><strong>National accounts</strong></h2>

<p><strong><u>‘V-shaped’ recovery:</u> </strong>The Australian economy (as measured by gross domestic product or GDP) grew by 3.1 per cent in the December quarter (consensus: +2.5 per cent) after rising 3.4 per cent in the September quarter and contracting 7 per cent in the June quarter. It was the biggest six-month lift in GDP since quarterly records began in 1959. GDP is still 1.1 per cent smaller than a year ago.</p>

<p><strong><u>Annual result:</u> </strong>In 2020, the economy contracted 2.5 per cent (biggest fall since 1947) after growing 1.9 per cent in 2019.</p>

<p><strong><u>Contribution to growth</u>: </strong>The biggest contributions to growth came from household spending (+2.3 percentage points); business equipment (+0.3pp); ownership transfer costs, dwellings, government consumption (all +0.2pp); and public investment (+0.1pp). But detracting from growth was net exports, commercial construction and inventories (all -0.1pp).</p>

<p>[smartcode_project:default project_id=7275]</p>

<p><strong><u>Income:</u> </strong>Real net national disposable income rose by 4.9 per cent in the December quarter and was up by 2.1 per cent on the year. In nominal terms GDP rose by 4.2 per cent in the quarter and rose by 0.6 per cent over the year.</p>

<p><strong><u>Productivity:</u> </strong>GDP per hours worked was flat in the December quarter but was up by 2.5 per cent on the year.</p>

<p><strong><u>Industry sectors:</u> </strong>Seventeen of the 19 industry sectors grew in the December quarter. The biggest contribution to the overall increase in output came from <em>Agriculture, Forestry and Fishing</em> (+0.5 percentage points) from <em>Professional, Scientific and Technical Services and Administrative and Support Services </em>(both +0.3pp). Output fell 1.0 per cent in <em>Mining</em> in the quarter with <em>Electricity, Gas, Water and Waste Services</em> down 0.9 per cent.</p>

<p>[smartcode_project:default project_id=92985]</p>

<h2><strong>What does it all mean?</strong></h2>

<p>It has been a most curious period for the Australian economy. After entering recession in the first half of 2020, the economy roared back in the final six months of the year. Clearly it has been all about Covid-19. Australian governments and the central bank responded quickly in locking down the economy and in providing the support and stimulus to families and businesses. The moves to suppress the virus were effective as were the support and stimulus measures.</p>

<p><img alt="" height="977" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/record_gdp_commsec.jpg" width="1200"></p>

<p>The ‘V-shaped’ nature of the recovery is everywhere to see – economic growth, the job market, retail spending and the housing market. The Reserve Bank acknowledges that the recovery has been stronger than expected.</p>

<p>But the job is not done. The economy is still around 1 per cent smaller than a year ago. Unemployment is still too high; inflation and wage growth are still too low. But the forward indicators like job ads and business and consumer surveys are positive.</p>

<p>We expect the economy to rebound 4.2 per cent in 2021 after contracting 2.5 per cent in 2020. Much still depends on Aussies doing the right thing with social distancing measures. The vaccine roll-out is in the infancy. And then there is the risk posed by mutant strains of the virus.</p>

<p>[smartcode_project:default project_id=2772]</p>

<p>Stimulus and support measures are still very much required, and any scale-back needs to be carefully managed. The Reserve Bank certainly hasn’t changed its rhetoric. Rates will remain low for another three years. Bond buying will continue. Cheap loans will remain under offer to business.  </p>

<p>The all-important jobless rate is expected to ease from 6.4 per cent currently to 5.7 per cent by the end of 2021. While still high, clearly it is moving in the right direction. But spare capacity will remain in the job market for a few more years, keeping the cash rate anchored at 0.1 per cent.  </p>

<p>Craig James is the chief economist at CommSec</p>
</body></html>

We expect the economy to rebound 4.2 per cent in 2021 after contracting 2.5 per cent in 2020

Joel Robinson

Biggest economic rebound on record: CommSec's Craig James

<html><body>
<p>Expert Observer</p>

<p>The Q4 National Accounts confirmed a brisk rebound in activity.</p>

<p>GDP printed at 3.1%qtr, -1.1%yr.</p>

<p>This was above expectations, market median and Westpac 2.5%.</p>

<p>[smartcode_project:default project_id=7275]</p>

<p>As we had flagged, the risks were to the upside – with the expenditure partials having surprised to the high side. That is how it played out.</p>

<p>The key theme, the economy rebounded rapidly through Q3, +3.4%, and Q4, +3.1%, with considerable momentum into 2021.</p>

<p>Consumers and businesses are upbeat, state governments are spending up, the housing market is red hot and the vaccine roll-out is underway.</p>

<p>Success on the health front has permitted the rolling back of most, but not all, covid restrictions. Victoria emerging from a second lock-down boosted activity in Q4 and will do so again in Q1.</p>

<p>[smartcode_project:default project_id=92985]</p>

<p>The recovery broadened in Q4:</p>

<p>(1) home building, up 4.1%, following a +1.6% for Q3, the first gains since June 2018, in response to cheap credit and government incentives, and</p>

<p>(2) business investment advanced, up 2.6%, led by equipment spending, +8.1%, in response to the accelerated depreciation allowance. That follows a string of negatives.</p>

<p>Real estate activity (ownership transfer costs) surged a further 15.2%, after a 21.6% rebound in Q3, to be 15.3% higher over the year – with the established housing market booming.</p>

<p>Consumer’s ability and willingness to spend is the key dynamic – certainly the relaxing of covid restrictions provides consumers with more opportunities to spend.</p>

<p>[smartcode_project:default project_id=2772]</p>

<p>The household saving ratio spiked to 22% in Q2, on the drop in spending associated with the lock-down and the wave of government income support. The savings rate moderated to 18.7% in Q3 and retraced to 12% in Q4 and will unwind further in 2021.</p>

<p>The critically important point, while there was a tapering of government support in Q4, which saw business profits moderate off a high level, consumers have a sizeable savings buffer to fund a further lift in spending – and that is what they are choosing to do.</p>

<p>The consumer picture was largely as expected with spending posting another strong gain, led by normalising conditions in Victoria, and despite a material drag on incomes from reduced fiscal supports.</p>

<p>Total consumption rose 4.3%qtr to be down just 2.7%yr. Victoria posted a 10.4% gain in the quarter, spending up 2.3%qtr across the other states combined.</p>

<p>The spending detail was a little stronger than expected around vehicles and retail but a touch softer than expected on services.</p>

<p>[smartcode_project:default project_id=24323]</p>

<p>Around incomes, wages rose 1.4%qtr with a strong increase in employment and hours worked more than offsetting initial drags from the wind-back in JobKeeper support. However real disposable income – including small business and non wage incomes and net of interest and tax – recorded a sizeable 3.3% fall. The rise in spending was thus funded out of a reduction in new savings, the savings rate falling from 18.7% in Q3 to 12% in Q4</p>

<p>Public demand continues to be a growth driver, up 1.0% in the quarter and a very brisk 6.5% over the year, in part driven by the response to covid.</p>

<p>Net exports were a small negative, -0.1ppt, as imports roared back, +4.9%, to meet the brisk rebound in domestic demand. Inventories, in total, subtracted -0.1ppt.</p>

<p>In other detail, the Expenditure measure of GDP printed at 3.0%, Income at 3.3% and Production at 3.1%.</p>

<p>Andrew Hanlan is a senior economist at Westpac.</p>
</body></html>

Consumers and businesses are upbeat, state governments are spending up, the housing market is red hot and the vaccine roll-out is underway.

December quarter sees GDP grow 3.1%: Westpac's Andrew Hanlan's insights

<html><body>
<h3 class="post-title entry-title"> </h3>
<div id="post-body-2781265956150443664" class="post-body entry-content">
<div>Australia's GDP increased to $1.67 trillion in financial year 2016, measured in seasonally adjusted Chain Volume Measures terms, now tracking at just above $420 billion per quarter.</div>
<div> </div>
<div>Following on from yesterday's post, a quick look here at industry gross value added (GVA).</div>
<div> </div>
<div>Having accounted for just over 5 per cent of industry GVA three decades ago, mining's share has swelled to 8.9 percent as export volumes begin to ramp up.</div>
<div> </div>
<div>Finance and insurance also now accounts for 8.9 per cent of industry GVA, up from just 4.9 per cent in 1986.</div>
<div> </div>
<div>You can click on the chart to expand it (or use the touch screen, if you have one of those, of course).</div>
<div> </div>
<div><a href="/images/2016/09/28/GVA.jpg" target="_blank">Click to enlarge</a></div>
<br><div class="separator"><img src="/images/2016/09/28/GVA.jpg" alt=""></div>
<br><div class="separator"> </div>
<div>On the other hand, manufacturing is shrinking as a share of the pie, declining from a share of 11.1 percent at the beginning of this chart to just 5.8 percent in 2016.</div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Construction wind-down</span></strong></div>
<div> </div>
<div>The latest figures show that the contribution of construction to GDP has remained solid at 7.6 per cent, tracking at around $32 billion per quarter.</div>
<div> </div>
<div>A decade ago construction was contributing only $13 to $14 billion per quarter. </div>
<div> </div>
<div>This suggests that the planned 'hand-off' from resources to residential construction was generally a success between 2012 and 2016. </div>
<div> </div>
<div>However, this does also mean that as residential construction eventually winds down there will be quite a hole in domestic demand to be plugged by something other than rising mining export volumes.</div>
<div> </div>
<div>Given the respective skill-sets of all those construction workers, tradies, and project managers, the answer should be: infrastructure and non-residential construction, as I looked at in a bit more detail here. </div>
<div> </div>
<div>Indeed, the unprecedented stamp duty windfall from Sydney's property boom is already funding a range of infrastructure projects in Sydney and New South Wales. </div>
<div> </div>
<div>But what about the gaping gulf left behind in the resources regions? </div>
<div> </div>
<div>Troubling, and this may be leading to an exodus of regional workers. </div>
<div> </div>
<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
</div>
</div>
</body></html>

pwargent-M4siyDbqQY

When construction winds down: Pete Wargent

<html><body>
<div id="post-body-2934597644349298689" class="post-body entry-content">
<div class="separator">Some years ago there were doomsday predictions of a property correction in Australia since dwelling prices had reached three times the value of our Gross Domestic Product (the exact relevance of the three times figure was never adequately explained).</div>
<div class="separator"> </div>
<div class="separator">Today, the ratio is just over 3.6 times, having ticked down slightly over the past six months of publicly available official figures.</div>
<div class="separator"> </div>
<div class="separator">Is there a link between the two measures? Kind of, but it's not very strong.</div>
<div class="separator"> </div>
<div class="separator">In fact, as a predictor of property prices the ratio has been useless in recent years. Actually, no, it's been worse than useless - it has been a contra-indicator!</div>
<div class="separator"> </div>
<div class="separator">One problem with GDP is that it's historic in nature, so at best it tells you what was happening in the economy months ago - thus as an indicator of future outcomes it's necessarily all that useful.</div>
<div class="separator"> </div>
<div class="separator">More pertinently this ratio doesn't make a lot of logical sense since it compares a <strong>stock</strong> value at a fixed point in time with a <strong>flow</strong>, being the value of goods and services produced over a specified period of time (in the example in the chart below, one year).   </div>
<div class="separator"> </div>
<div class="separator"><a href="/images/2016/07/06/STOCK.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/STOCK.jpg" alt=""></div>
<br><div>Furthermore, some types of property in thinner markets fare much better in times of boom, and worse in times of bust. And some types of property in some inner suburban locations tend to outperform the averages over time, while properties is lower demand generally fail to keep pace with the averages.</div>
<div> </div>
<div class="separator"><strong><span style="text-decoration: underline;">Key national accounts aggregates</span></strong></div>
<div class="separator"> </div>
<div class="separator">In today's electronically connected world, hordes have wanted to be the person to 'call' the next Australian recession. But the economy has proved to be surprisingly robust, with the annualised rate of GDP growth for the past six months accelerating to 3.6 per cent. </div>
<div class="separator"> </div>
<div class="separator">The riposte has been that GDP is the "wrong" measure - we should ignore GDP and look at national income. </div>
<div class="separator"> </div>
<div class="separator">It is indeed true that real (i.e. adjusted for inflation) gross national income has stalled, but then again Australia's commodity prices could not and did not grow to the sky, so this isn't necessarily that surprising. </div>
<div class="separator"> </div>
<div class="separator">Another way to look at this is that national income has more than doubled over the past twenty years, even after accounting for inflation.</div>
<div class="separator"> </div>
<div class="separator"><a href="/images/2016/07/06/GDP.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"> </div>
<div class="separator"><img src="/images/2016/07/06/GDP.jpg" alt=""></div>
<div class="separator"> </div>
<div class="separator">Moreover, if GDP is an unreliable measure of the performance of the economy, how can it be a good measure of dwelling prices? Can't have it both ways! </div>
<div class="separator"> </div>
<div class="separator"><strong><span style="text-decoration: underline;">National accounts</span></strong></div>
<div class="separator"> </div>
<div class="separator">The national accounts provide us with a range of figures relating to the property markets, but as implied by the name of the data release the figures are national and backward-looking in nature, and therefore don't really tell us much of interest about what sub-regional property markets are up to or will be up to.</div>
<div class="separator"> </div>
<div class="separator">As noted, the national accounts lag a bit, but broadly home owners owe about $1 trillion in mortgage debt, and investors about $550 billion. What is not so well shown by these figures is that mortgage buffers and offset accounts are also at record high levels. </div>
<div class="separator"> </div>
<div class="separator"><a href="/images/2016/07/06/DEBT1.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/DEBT1.jpg" alt=""></div>
<br><div>With dwelling price growth having outpaced the growth in household debt, gearing ratios have declined in recent years.</div>
<br><div class="separator"><a href="/images/2016/07/06/DEBT2.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/DEBT2.jpg" alt=""></div>
<br><div class="separator">None of which tells of much of any predictive value. We can all think of housing markets in Australia that are overvalued; but equally we can all name others where prices are getting walloped or have already crashed. </div>
<div class="separator"> </div>
<div class="separator">If there is one ratio from the national accounts which is useful in predicting where to next for dwelling prices - and I'm not saying that there necessarily is - it's the ratio of housing interest payable to income. </div>
<div class="separator"> </div>
<div class="separator">The actual quoted percentage figure is skewed lower since so many households have no mortgage debt at all, but has declined from a peak of 16.4 per cent in June 2008 to 9.7 per cent by December 2015. </div>
<div class="separator"> </div>
<div class="separator">On this measure, mortgage repayments are more than 40 per cent cheaper than they were at their 2008 peak.</div>
<br><div class="separator"><a href="/images/2016/07/06/INTEREST%20PAYABLE.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/INTEREST%20PAYABLE.jpg" alt=""></div>
<div class="separator"> </div>
<div class="separator"><strong><span style="text-decoration: underline;">Rates heading lower?</span></strong></div>
<div class="separator"> </div>
<div class="separator">It would be fair to say that if mortgage rates head back to where they were at their most recent peak of about 8 to 9 per cent, then many of Australia's housing markets are heading into correction territory. </div>
<div class="separator"> </div>
<div class="separator">It's an interesting bet if you want to take it on. But money markets are begging to differ, with yields grinding out new lows in anticipation of possible Brexit turmoil. </div>
<div class="separator"> </div>
<div class="separator">Yesterday Australia's 10 year government bond yield fell to its lowest ever level at well below 2 per cent.</div>
<br><div class="separator"><a href="/images/2016/07/06/RBA.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/RBA.jpg" alt=""></div>
<br><div>Meanwhile, OIS rates are on a seek and destroy mission to crunch out new record lows, and they are winning that particular battle. We are now just one benign inflation print from seeing a new record low cash rate in August.</div>
<br><a href="/images/2016/07/06/OIS.jpg" target="_blank">Click to enlarge</a>
</div>
<div class="post-body entry-content">
<img src="/images/2016/07/06/OIS.jpg" alt=""><br><br><strong><span style="text-decoration: underline;">The wrap</span></strong><br><br><div>GDP is a useful measure of the strength or otherwise of the economy. And over the long term stronger economic growth may be reflected in higher dwelling prices - but not necessarily so, since there are so many other contributory factors, such as tax settings or the supply of new dwellings, for example. </div>
<div> </div>
<div>It's true that property prices can fall during recessions. But then again they can fall when GDP is positive such as they did in 2011 and early 2012.<br><br>And what about China, where real GDP growth has slowed from above 13 per cent in 2007 to just 6.7 per cent (if you can call 6.7 per cent slow), yet house prices in Shenzhen have skyrocketed by more than 50 per cent within the past year?<br><br>Obviously there are many other factors at play than purely economic growth.  And if there is a correlation between GDP and dwelling stock valuations, it's a tenuous one. </div>
<div> </div>
</div>
<div class="post-footer"> 
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
</div>
</body></html>

The GDP myth and doomsday property predictions: Pete Wargent

<html><body>
<p class="legacy"><strong><span style="color: #333333; font-family: Tahoma, Helvetica, Arial, sans-serif; font-size: 12.15999984741211px;">EXPERT OBSERVER</span></strong></p>
<p class="legacy"><span style="color: #333333; font-family: Tahoma, Helvetica, Arial, sans-serif; font-size: 12.15999984741211px;">It became official on Wednesday. The Australian economy is in recession for the first time in nearly three decades.</span></p>
<p>And the drop in economic activity is unprecedented. GDP fell 7% in the June quarter. The previous biggest post-war fall in Australia was 2% in June 1974.</p>
<p>But Treasurer Josh Frydenberg noted that in March he was told the June quarter contraction might be 20%. In Britain it was.</p>
<p>Bookkeeping aside, the question that matters is how to fight this recession.</p>
<p>Answering it requires an understanding that it is a different type of recession to those we’ve seen before.</p>
<p>As I pointed out <a href="https://theconversation.com/vital-signs-covid-19-recession-is-different-and-we-need-more-stimulus-to-deal-with-it-141037" target="_blank">earlier this year</a> the recessions some of us grew up with in the early 1980s and 1990s were “business cycle” recessions.</p>
<p>They happened because the economy overtook its inbuilt speed limit and pushed up inflation. To curb it, central banks pushed up interest rates, pushed them up too far and choked off investment and spending, sending economic activity backwards.</p>
<h2>A recession like no other</h2>
<p>In 2020 we face a different sort of shock.</p>
<p>COVID-19 has hammered economic activity, even more so in countries such as the United States where it has run out of control.</p>
<p>Many of the opportunities we used to have to spend money (such as airlines, theatre tickets and cafe meals) simply haven’t been there.</p>
<p>They’ll come back when things return to closer to normal, perhaps though the wide deployment of a vaccine.</p>
<p>But we might not spend as we used to.</p>
<p>Some people, out of work or on shorter hours won’t have the capacity to spend. Others will want to rebuild their savings.</p>
<p>And others who have been saving big might decide to keep doing it.</p>
<hr>
<p><strong>Household saving ratio</strong></p>
<p><a href="https://images.theconversation.com/files/355997/original/file-20200902-22-yq9rjf.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/355997/original/file-20200902-22-yq9rjf.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> </p>
<p><em><span class="attribution"><span class="source">ABS Australian National Accounts</span></span></em></p>
<p>Australia’s household saving ratio surged to 19.7% in the June quarter.</p>
<p>It’s a peak not reached since 1974 at a time when there was much less of an age pension and superannuation, no Medicare and surging unemployment. In other words, its at a height not reached since people really needed to save.</p>
<p>The Bureau of Statistics says that if household income from all sources including early access to super was counted, the ratio is even higher. Its estimate of what it calls the “household experience savings ratio” is 24.8%.</p>
<p>That means households saved an extraordinary one in every four dollars that came through their doors in the June quarter, up from mere percentage points a few quarters earlier.</p>
<p>Much of it would have been what economists call <a href="https://www.propertyobserver.com.au/https://academic.oup.com/qje/article/132/3/1427/3071924?casa_token=NaR4tX3aSioAAAAA:5a0tN7y4nXtjvyxhO1tit2wcRHuU-NmyYeUJD2Md_gw6wnoLrLkYAwfNWxBE4XkYCfTVh4NeLIfL4rQ" target="_blank">precautionary saving</a>, understandable given how much of the future is uncertain.</p>
<h2>There’s such a thing as too much saving</h2>
<p>But what if this extraordinarily high saving rate lasts beyond the point it is understandable, as it did in Japan.</p>
<p>As with Japan in the 1990s when saving soared, real interest rates are negative. We are so <a href="https://web.mit.edu/krugman/www/japtrap" target="_blank">keen to save</a> we don’t need a financial return.</p>
<p>There were signs of it worldwide, well before the pandemic. President’s Clinton’s Treasury Secretary Larry Summers referred to it as <a href="http://larrysummers.com/2016/02/17/the-age-of-secular-stagnation/" target="_blank">secular stagnation</a>, a term first coined in the 1930s.</p>
<p>Saving more than we are prepared to invest shrinks economic activity. It creates unemployment which itself creates uncertainly, prodding people to save still more than they invest.</p>
<p>It’s one of the reasons worldwide economic growth is low, interest rates are low, and inflation is low.</p>
<p>During the pandemic the government is spending more than A$100 billion on measures such as JobKeeper and JobSeeker.</p>
<h2>If we won’t spend, out government will have to</h2>
<p>Post pandemic it might have to keep spending big on physical and social infrastructure – things such as major projects and better aged care and health care.</p>
<p>If we won’t spend big again, it’ll have to. It’ll need to get the economy’s long term growth rate back up to 2%, or even the <a href="https://treasury.gov.au/speech/the-macroeconomic-context" target="_blank">near 3%</a> the Treasury thinks it is capable of.</p>
<p>It’ll require a lot. </p>
<p>Australia used to have one of the lowest company tax rates in the developed world, now we have one of the highest. We tax labour income too much and consumption too little. And we have a hopelessly out of date and absurdly complex industrial relations system.</p>
<p>Each of those things are a handbrake on economic growth.</p>
<p>This is an unusual recession and an unusually deep one.</p>
<p>Digging our way out will require us to at first contain and defeat the virus, and then spend like Keynes and <a href="https://www.afr.com/policy/economy/we-can-spend-like-keynes-and-cut-taxes-like-friedman-20200728-p55g2s" target="_blank">cut taxes like Friedman</a>.<img src="https://counter.theconversation.com/content/145484/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></p>
<p><span><a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics, <em><a href="https://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a></em></span></p>
<p>This article is republished from <a href="https://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-how-do-you-fight-a-recession-without-precedent-145484" target="_blank">original article</a>.</p>
</body></html>

j.ballantyne1990-6AQqhLzZaK

Vital Signs: How do you fight a recession without precedent?

<html><body>
<p>EXPERT OBSERVER</p>
<p>The Australian economy contracted by 7% in the June quarter, broadly in line with expectations (both Westpac and market median at -6%).</p>
<p>This is by far the largest quarterly contraction in the Australian economy on record (previous record was -2.0% in June 1974).</p>
<p>However by international comparisons the contraction is relatively mild with UK (-20.3%); Europe (-12.1%); US (-9.1%); and Japan (-7.8%) all exceeding Australia’s contraction.</p>
<p>Of course these extraordinary numbers reflect the impact on activity from governments’ actions to contain the health damage to citizens from the Coronavirus.</p>
<p>As with other countries the primary impact of the containment policies was to restrict consumer spending. For Australia consumer spending represents 56% of GDP yet the 12% contraction in consumer spending explained 98% of the overall contraction in GDP. Components of consumption which were most adversely affected were: transport services (fell 86%); accommodation services (-77%); catering services (-56%); recreational and cultural services (-52%) and health (20%).</p>
<p>Household gross disposable income rose by 2.2%, largely reflecting the boost to social assistance benefits.</p>
<p>Hours worked fell by 9.8% although wage incomes declined by only 2.5%. That “gap” is explained by the JobKeeper subsidy payments which were used to maintain the wages of workers who experienced a significant reduction in hours worked.</p>
<p>With the lift in household incomes and the collapse in spending the household savings rate soared to 19.8% from 6% in the March quarter.</p>
<p>The sharper fall in hours worked relative to output points to the disproportionate job losses in the labour intensive service sectors of the economy.</p>
<p>The dominance of consumer spending in this result is generally highlighted by other components of expenditure, which were weak, reflecting the recession conditions, but not spectacularly so – business investment fell 3.5%, including a fall of 6.8% in machinery and equipment and a partly offsetting rise in infrastructure investment; residential construction fell by 6.8%; and real estate activities fell by 18.6%.</p>
<p>Nevertheless we can expect that the lags from recessionary conditions in the June quarter will continue to impact business investment and housing for the remainder of the year.</p>
<p>Exports fell by 6.7% (including a 24.6% fall in travel services and a 46.6% fall in transportation services) while imports fell 12.9% as the international border closure triggered a 98.7% fall in travel services and a 32.9% fall in transportation services. Overall net exports contributed 1.0ppt to GDP growth.</p>
<p>The growth outlook for the remainder of the year will be dependent on the success which government achieve in containing the virus.</p>
<p>On the positive side we assess that the economy had considerable momentum going into the September quarter following the 4% snap back in hours worked in June and the lift in jobs in June and July. Of course that momentum was severely impacted by the deterioration in Victoria which represents around 24% of national GDP.</p>
<p>Our current figuring points to a flat quarter overall in September to be followed by a strong recovery in the December quarter. That recovery is dependent upon our base assumptions that Victoria will move through to a Stage2 in the December quarter while other states will avoid any damaging second waves.</p>
<p>As we have seen in today’s report the governments’ support packages have played a key role in containing the impact on household incomes from the containment policies. The December quarter will – on current policy settings – see a considerable scale back in that support affecting both households and business.</p>
<p>However, as demonstrated by the spike in the savings rate, the household balance sheet is in much better shape to cope with the partial withdrawal of the government payments.</p>
<p>The upcoming Federal budget, on October 6, provides the government with another opportunity to reassess and reset policy support. The annual Budget will undoubtedly be expansionary, the question is the degree of additional stimulus and the form that takes. The bringing forward of already legislated income tax cuts is an appropriate action in the current environment.</p>
<p>Overall we expect that the net positive effect of the general reopening of the state economies on the consumer sector, including relaxation of key state border restrictions will underpin a strong recovery in the December quarter.</p>
</body></html>

bevans-rYk9SxEa4r

What does the record 7% collapse in GDP mean? Bill Evans

<html><body>
<p>The Australian Gross Domestic Product fell seven per cent in the June quarter, the largest quarterly fall on record, according to figures released by the Australian Bureau of Statistics today.</p>
<p>This follows a fall of 0.3 per cent in the March quarter 2020, with Australia now officially entering a recession.</p>
<p><span>The biggest quarterly contraction on record has confirmed Australia’s first recession since the 1990s and its most severe economic blow since World War II.</span></p>
<p>Head of national accounts at the ABS, Michael Smedes said, “The global pandemic and associated containment policies led to a 7.0 per cent fall in GDP for the June quarter. This is, by a wide margin, the largest fall in quarterly GDP since records began in 1959.”</p>
<p>"The June quarter saw a significant contraction in household spending on services as households altered their behaviour and restrictions were put in place to contain the spread of the coronavirus."</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/9/2/GDP.jpg" alt=""></p>
<p>Net trade contributed 1.0 percentage points to GDP. Imports of goods fell 2.4 per cent, with falls in consumption and capital goods reflecting weak domestic demand. Imports of services fell 50.5 per cent and exports of services fell 18.4 per cent, due to restrictions on travel and tourism.</p>
<p>Public demand contributed 0.6 percentage points to GDP, driven by health related spending by the state and local government. Defence spending also increased as personnel were deployed to assist with management of the COVID-19 pandemic.</p>
<p>The household saving to income ratio rose to 19.8 per cent from 6.0 per cent, driven by the fall in consumption expenditure. Hours worked fell a record 9.8 per cent, outpacing the record 2.5 per cent decline in wages which were supported by JobKeeper payments. Social assistance benefits in cash rose a record 41.6 per cent, due to increased number of recipients and additional support payments.</p>
<p>General government net saving fell to -$82.6 billion from $1.2 billion in the March quarter 2020.</p>
<p class="_1HzXw">CBA was one entity that was off the mark with a less pessimistic outlook than the market consensus, which was a 6 per cent contraction for the economy.</p>
<p class="_1HzXw">Commonwealth Bank economist Kim Mundy believed GDP will have fallen by 5.4 per cent in the June quarter.</p>
<p>A month ago CBA changed their forecasts, with head of Australian economics Gareth Aird saying the Melbourne lockdowns have changed their thinking.</p>
<p>They cut the GDP growth forecast to -4.2 per cent for 2020, worse than the -3.8 per cent predicted before the lockdowns.</p>
<p>"There will be a huge disparity in economic outcomes between Victoria and the rest of Australia in Q3 20", Aird said.</p>
<p>Economist Lindsey David tweeted, "That GDP report was once-in-a-lifetime."</p>
<p>APAC economist Callum Pickering said, "o<span>ver the past decade the Australian economy has expanded by just 1.7% a year on average. Adjusted for population growth and real GDP has increased by just 0.2% a year. Even before COVID-19 we had experienced a long period of relatively low growth.</span></p>
</body></html>

wdavis-8cCN98p7xp

GDP plummets 7%, the largest fall ever, as Australian recession begins

<html><body>
<p class="legacy"><span>We are a country that has become richer than we possibly ever could have imagined. We have had 29 years of unprecedented, </span><a href="https://www.austrade.gov.au/news/economic-analysis/australia-on-course-to-celebrate-30-years-of-growth-says-oxford-economics#note-1" target="_blank">world-record holding</a><span> economic growth.</span></p>
<p>Although economically things are a little <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2020-02-27/government-budget-surplus-threatened-by-coronavirus/12002704" target="_blank">precarious</a> in the midst of the coronavirus outbreak and our worst bushfires in recorded history, ahead of the first gross domestic product (GDP) announcement for the year, it’s worth acknowledging this remarkable achievement.</p>
<p>But what has it meant for people’s lives? The figures tell us little about <a href="https://www.theguardian.com/commentisfree/2020/feb/23/fiona-stanleys-2020s-vision-please-can-we-move-beyond-gdp" target="_blank">whether life is getting better</a>.</p>
<p>In 1991, the last time GDP went backwards for two consecutive quarters, 258,226 babies were born in Australia.</p>
<p><strong>Samantha and Andrew</strong></p>
<p>Let’s call one of them Samantha, born in Bently, an area of high socioeconomic disadvantage in Western Australia, and the other Andrew, born in the suburb of Griffith in the Australian Capital Territory.</p>
<p>During the first two years of their lives, around one in 10 families with children were in a <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/2f762f95845417aeca25706c00834efa/855e6f87080d2e1aca2570ec000c8e5f!OpenDocument" target="_blank">jobless household</a>.</p>
<p>Andrew’s parents had jobs. Samantha’s didn’t.</p>
<p>By the time Samantha and Andrew were 25, in 2016, average household disposable income was twice what it had been when they were born, even after accounting for higher prices.</p>
<p>But it’s not hard to see that, despite economic growth, their lives were different.</p>
<p>Samantha had less education, was underemployed, in housing stress and skipping meals to feed her kids. Andrew had higher education, was employed full-time, lived with high-income parents and was saving for a deposit for a place of his own.</p>
<p>While economic growth made us wealthier as a country, it hasn’t been good for all of us.</p>
<p>We need a measure that sits alongside gross domestic product that tells us whether we are actually getting better off.</p>
<h2>What matters is whether we are really better off</h2>
<p>The idea of a broader measure of social progress isn’t new – a collaboration called the <a href="http://www.andi.org.au/" target="_blank">Australian National Development Index</a> has been underway a few years now, and the Australian Bureau of Statistics used to publish “<a href="https://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1370.0%7E2013%7EMain%20Features%7EAbout%20MAP%7E2" target="_blank">Measures of Australia’s Progress</a>” until budget cuts in 2014.</p>
<p><a href="https://treasury.govt.nz/publications/wellbeing-budget/wellbeing-budget-2019-html" target="_blank">New Zealand</a> introduced a “well-being budget” last year, targeting mental health, child welfare, Indigenous reconciliation, the environment, suicide, and homelessness, alongside traditional measures of productivity and investment.</p>
<p>Labor’s treasury spokesman, <a href="https://www.smh.com.au/politics/federal/measure-what-matters-labor-s-plan-to-track-the-nation-s-wellbeing-alongside-gdp-20200219-p5426n" target="_blank">Jim Chalmers</a>, has <a href="https://jimchalmers.org/media/speeches/measuring-what-matters/" target="_blank">promised</a> to do the same when Labor is next in office.</p>
<p><a href="https://amplify.csi.edu.au/social-progress-index/" target="_blank">Australia’s Social Progress Index</a>, launched last month by the <a href="https://amplify.csi.edu.au" target="_blank">Centre for Social Impact</a> at UNSW Sydney and the <a href="https://www.socialprogress.org/" target="_blank">Social Progress Imperative</a> will go further, and much further than the national accounts to be released today.</p>
<p>It will enable the well-being and opportunities to be ranked and compared by location and time.</p>
<p>The <a href="https://amplify.csi.edu.au/social-progress-index/" target="_blank">online tool</a> enables anyone to explore how we are tracking on <a href="https://amplify.csi.edu.au/social-progress-index/methodology/" target="_blank">12 components </a> grouped into three domains: basic human needs, foundations of well-being, and opportunity.</p>
<p><a href="https://images.theconversation.com/files/318218/original/file-20200303-18270-7wakux.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/318218/original/file-20200303-18270-7wakux.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a></p>
<p>Finding the components wasn’t easy.</p>
<p>We needed to consider data availability, data detail, sample sizes, and reliability. We considered more than <a href="https://amplify.csi.edu.au/social-progress-index/methodology/" target="_blank">400 possibilities</a>.</p>
<p>While it is by no means the only (or perfect) way of understanding Australian living standards, it pushes us significantly beyond GDP.</p>
<p>It asks and answers universally important questions, such as:</p>
<p>• Do people have adequate housing with basic utilities?</p>
<p>• Do people have access to an educational foundation?</p>
<p>• Are people free to make their own life choices?</p>
<p>• Is this society using its resources so they will be available to future generations?</p>
<h2>Economic growth doesn’t tell us much</h2>
<p>The results show a stark disconnect between economic and social progress. While our GDP has been rising, we have fared poorly on environmental quality and access to information and communications.</p>
<p>At a state and territory level, despite having high gross state product per capita, <a href="https://www.jtsi.wa.gov.au/docs/default-source/default-document-library/wa-economic-profile---february-2019.pdf?sfvrsn=538731c_4" target="_blank">Western Australia</a> and the <a href="https://nteconomy.nt.gov.au/economic-growth" target="_blank">Northern Territory</a> ranked 7th and 8th on most of the indicators.</p>
<p>The rising tide has not lifted all boats.</p>
<p>This is evident in Andrew and Samantha’s lives (the Australian Capital Territory ranks first overall, Western Australia 7th) and also in the aftermath of the bushfires.</p>
<p>People were cut off from <a href="https://www.theguardian.com/australia-news/2020/jan/01/australia-bushfire-towns-supplies-power-houses-the-lot" target="_blank">power</a>, information, <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/rural/2020-01-13/are-australias-telecommunication-up-to-the-new-kind-of-megafire/11860238" target="_blank">communication</a>, and <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2020-01-06/fire-cuts-food-supplies-to-nsw-south-coast-towns-and-families/11842382" target="_blank">access to resources</a>. Many <a href="https://www.health.nsw.gov.au/news/Pages/20191113_00.aspx" target="_blank">struggled to breathe</a>. We lost much of our ecosystem.</p>
<p>The economy is fundamental to improving our well-being and fuelling our social progress, but it isn’t everything and it isn’t necessarily inclusive.</p>
<p>If we had inclusive growth we wouldn’t be able to predict babies’ futures by the postcodes in which they were born. We would be able to meet basic human needs regardless of how much was spent and earned each quarter.</p>
<p>Today’s national accounts will be important, as a spur to asking other important questions, rather than as the final answer.<img src="https://counter.theconversation.com/content/132739/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></p>
<p><span><a href="https://theconversation.com/profiles/kristy-muir-158422" target="_blank">Kristy Muir</a>, Professor of Social Policy / CEO, Centre for Social Impact, <em><a href="https://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a></em>; <a href="https://theconversation.com/profiles/isabella-saunders-981654" target="_blank">Isabella Saunders</a>, Research Assistant at the Centre for Social Impact, <em><a href="https://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a></em>, and <a href="https://theconversation.com/profiles/megan-weier-151162" target="_blank">Megan Weier</a>, Research Fellow, <em><a href="https://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a></em></span></p>
<p>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/todays-gdp-figures-wont-tell-us-whether-life-is-getting-better-heres-what-can-132739" target="_blank">original article</a>.</p>
</body></html>

Today's GDP figures won't tell us whether life is getting better -- here's what can

<html><body>
<p>GUEST OBSERVATION </p>
<p>Despite 28 years of uninterrupted economic growth, future generations of Australians face being worse off due to increasing household debt, cost-of-living pressures, rising wealth inequality, climate change impacts and environmental degradation.</p>
<p>But our <a href="https://www.nature.com/articles/s41893-019-0409-9" target="_blank">new research</a> finds a fairer, greener and more prosperous Australia is possible – so long as political leaders don’t focus just on economic growth.</p>
<p><strong>Evaluating Australia’s progress by 2030</strong></p>
<p>We modelled four development scenarios for Australia through to 2030:</p>
<ul>
<li>“Growth at all Costs”, emphasising economic growth</li>
<li>“Green Economy”, emphasising environmental outcomes</li>
<li>“Inclusive Growth”, emphasising social equality</li>
<li>“Sustainability Transition”, balancing economic, social and environmental outcomes.</li>
</ul>
<p>Each scenario involved different policy and investment settings, particularly around tax and subsidies, government expenditure and private investment.</p>
<p>We then evaluated each scenario against the <a href="https://www.un.org/sustainabledevelopment/sustainable-development-goals/" target="_blank">Sustainable Development Goals</a>, an internationally recognised set of targets and indicators that measure national progress in 17 major areas. These include economic growth, poverty, inequality, education, health, clean water and clean energy.</p>
<p><img src="https://images.theconversation.com/files/302095/original/file-20191118-66971-1ur4w7y.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></p>
<p><em><span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/" target="_blank">CC BY-NC-SA</a></span></em></p>
<p><strong>Goals, targets and indicators</strong></p>
<p>Each goal involves multiple targets and indicators. Goal 8, for example, is “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”. This involves 10 targets including per capita economic growth, decoupling economic growth from environmental degradation, and protecting labour rights. Each target comes with at least one indicator (for example, the growth rate of real GDP per capita, material consumption per GDP, and the rate of occupational injuries).</p>
<p>In all, the 17 goals cover 169 targets. Because Australia has not adopted SDG targets, we chose 52 of those (with about 100 indicators) then modelled Australia’s progress in 2030 using our four scenarios.</p>
<p>The graph below shows each scenario’s score (with 0% meaning no progress, 100% target achieved) on each of the 17 goals. We also calculated an average score for each scenario across all goals to aid comparison.</p>
<p><strong>Growth alone is not the answer</strong></p>
<p>Our model projects a business-as-usual approach will achieve progress of about 40% across all goals and targets. The “Growth at all Costs’ scenario scored only slightly better: 42%.</p>
<p>Economic growth – defined as an increase in a nation’s production of goods and services – is generally measured by the annual change in real gross domestic product (GDP).</p>
<p>Our "Growth at all Costs” scenario involves accelerating economic growth through higher population growth and lower taxes. Net migration is modelled as being 350,000 a year by 2030, with the population reaching just over 30 million. The government’s tax revenue as a proportion of GDP is 10% less than now as a result of lower tax rates.</p>
<p>Government spending is about 15% less (as a percentage of GDP), with cuts particularly to health, education and social security, but more spending on transport infrastructure. There are no new measures to tackle greenhouse gas emissions, land degradation or other environmental concerns.</p>
<p>In our modelling this scenario increases GDP growth to about 2.6% a year, with low unemployment and declining government debt. But it comes at the expense of income inequality and the environment.</p>
<p>Even on the one goal it might be expected to do relatively well – Goal 8 – this scenario performs quite poorly. That’s because the goal measures per capita GDP growth, not just the total GDP growth most politicians talk about, along with a range of social and environmental indicators.</p>
<p>The following graphs show how the four scenarios compare on real GDP (i.e. adjusted for inflation), per capita GDP, income inequality and greenhouse gas emissions.</p>
<p><strong>Sustainability transition</strong></p>
<p>With an overall score of 70%, the “Sustainability Transition” scenario is the clear winner.</p>
<p>This scenario modelled slower population growth and higher taxes on consumption, income and profits and trade. With net migration of 100,000 a year by 2030, the population reaches about 28 million. Tax revenue as a percentage of GDP is about 8.5% higher than now. This funds more spending on health, education and social security, as well as the equivalent to 1% of GDP on the sustainability of transport, water, energy, agriculture and energy systems.</p>
<p>The overall result is economic growth of about 2.1% a year, with government debt 10% higher than our business-as-usual projection.</p>
<p>But per capita GDP is higher. Unemployment and income inequality are lower. Fewer people live in relative poverty, and life expectancy is higher. Energy, water and resource consumption is down. So are greenhouse gas emissions. There is more forested land. This delivers a more prosperous, fairer and greener nation in 2030.</p>
<p><strong>Possible futures</strong></p>
<p>These results run contrary to the “growth and jobs” narrative that <a href="https://www.businessinsider.com.au/heres-how-many-times-scott-morrisons-budget-speech-used-the-catchphrase-jobs-and-growth-2016-5" target="_blank">dominates political debate in Australia</a>. Both sides of politics emphasise economic growth as the key to prosperity. But this narrative is clearly flawed when we look at a broader set of issues.</p>
<p>The Sustainable Development Goals seek to capture all of these issues in a coherent way. Our study explores four plausible futures, and there are many other possible combinations that could be explored with worse or better results.</p>
<p>What is clear is that business as usual certainly won’t ensure Australia has a more prosperous, fairer and environmentally sustainable society.<img src="https://counter.theconversation.com/content/126823/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></p>
<p><em><strong>Cameron Allen</strong>, Researcher, UNSW.</em></p>
<p><em><strong>Graciela Metternicht</strong>, Professor of Environmental Geography, School of Biological Earth and Environmental Sciences, UNSW.</em></p>
<p><em><strong>Thomas Wiedmann</strong>, Associate Professor, UNSW.</em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/we-modelled-4-scenarios-for-australias-future-economic-growth-alone-cant-deliver-the-goods-126823" target="_blank">original article</a>.</em></p>
</body></html>

We modelled four scenarios for Australia’s future. Economic growth alone can’t deliver the goods

<html><body>
<p>EXPERT OBSERVATION</p>
<p>Australian GDP rose by 0.5% in the June quarter and annual growth slowed to 1.4%, which was right on market forecasts but below the RBA’s forecasts for a 0.8% rise in the quarter.</p>
<p>GDP growth is very weak and at its lowest level since the Global Financial Crisis (see chart below) which is why there is all the talk of a recession in Australia lately and why conditions in some pockets of the economy may feel recession-like.</p>
<p><em><a href="https://www.propertyobserver.com.au/images/2019/9/4/GDP.png" target="_blank">Click here</a> to enlarge: </em></p>
<p><img src="https://www.urban.com.au/images/2019/9/4/GDP.png" alt=""></p>
<p><em>Source: ABS, AMP Capital</em></p>
<p>The weakness in the Australian economy that started in mid-2018 has continued well into 2019.</p>
<p>The make-up of growth still remains a concern as private demand fell again in the June quarter (by 0.1%) with large increases in public spending and net exports “saving” the economy.</p>
<p>With consumer spending still struggling to lift noticeably, falling residential construction, moderate business investment growth, the private sector side of the economy will likely remain weak.</p>
<p>A softer global environment may also infiltrate further into Australia’s external sector. So the risk of an Australian recession remains and can’t be ignored.</p>
<p>However, this is not our base case partly because we expect more RBA interest rate cuts, possibly quantitative easing, and more fiscal stimulus which should help lift growth.</p>
<p>If the improvement in home prices continues it would also be positive for household wealth and provide some boost to inflation.  </p>
<p>The key components of the June quarter data are:</p>
<ul>
<li>Consumer spending rose by 0.4%, contributing 0.2 percentage points to the June quarter GDP.</li>
</ul>
<p>Consumer spending growth is still declining, with annual growth falling to 1.4%.</p>
<p>The household saving ratio declined to 2.3% (from 3%) after increasing in prior quarters.</p>
<p>While there may be some more downside to consumer spending growth due to the low wages environment, the bottoming in national home prices means that the negative wealth effect is waning.</p>
<p>Tax cuts to low and middle income earners should also have a positive boost to consumption over coming months, although the fall in July retail sales is concerning.</p>
<p>The declining household saving ratio tells us that the buffer for consumer spending is declining.</p>
<ul>
<li>Housing investment continues to decline and detracted 0.2 percentage points from GDP growth.</li>
</ul>
<p>New residential construction fell by 5.9% and alterations and additions were down by 1.4%.</p>
<p>Ownership transfer costs (a proxy for housing turnover activity) improved by 4.3%.</p>
<p>Building approvals continue to fall so there is still further downside to residential construction over the next year.</p>
<ul>
<li>Underlying business investment (which takes into account asset transfers between the private and public sector) fell by 0.4% and made no contribution to growth.</li>
</ul>
<p>Non-residential building was down by 5% and engineering construction dropped by 4.7% but is down 19.6% year on year.</p>
<p>Non-residential building approvals have been mixed over the past few months so there may be some more weakness to come for building activity.</p>
<p>The capital expenditure survey indicated that business investment growth will be positive albeit modest over the next year as mining investment is slowly improving, manufacturing investment is lifting and spending in the services industry is still trending up.</p>
<ul>
<li>Underlying government spending (which takes into account asset transfers between the private and public sector) was up strongly by 1.4% and contributed 0.3 percentage points to growth.</li>
</ul>
<p>Government consumption rose by 2.7% but investment fell by 2.3%. State and Federal government spending on infrastructure has been driving public spending over the past few years.</p>
<p>While the pipeline of projects in construction is peaking, the slow pace of project completions due to delays or other issues means that the peak in government infrastructure spending keeps on being pushed out which is a positive for GDP growth (but maybe not a positive for traffic congestion!).</p>
<ul>
<li>Inventories collapsed and detracted 0.5 percentage points from growth which means that production did not keep up with sales.</li>
</ul>
<p>The inventory to sales is at a record low of 0.581 and is unlikely to fall much further from here which means that inventories are likely to add to GDP in coming quarters.</p>
<ul>
<li>Net exports boomed and contributed 0.6 percentage points to growth.</li>
</ul>
<p>Export growth is solid which is a good sign of demand for goods and services but the collapse in imports (especially in consumption imports) is a bad sign for consumer spending.</p>
<ul>
<li>Productivity growth is still poor with the “GDP per hour worked in the market sector” flat over the June quarter and down by 0.6% over the year.</li>
</ul>
<p>Weakness in productivity growth reconciles the divergence between strong employment growth and weak GDP numbers. </p>
<p><strong>Implications</strong></p>
<p>While the RBA kept the cash rate unchanged yesterday, despite knowing the weakness in July retail sales and anticipating a low June quarter GDP number, we still expect rate cuts in October and November taking the cash rate to 0.5% as global data remains weak, the unemployment rate increases and global central banks (the ECB and Fed) cut interest rates (and restart asset purchases in Europe) in September which may influence the RBA’s decision to do more monetary stimulus lest the Australian dollar rises.</p>
<p><em><strong>SHANE OLIVER </strong>is Head of Investment Strategy and Chief Economist AMP Capital.</em></p>
<p><em><strong>DIANA MOUSINA </strong>is an Economist at AMP Capital. </em><span style="font-size: 12.16px;"> </span></p>
</body></html>

Gdp

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Gdp