Australian economy grows weakly
Australia’s real Gross Domestic Product (GDP) rose by 2.0 per cent in 2016/17, according to the annual national accounts released by the Australian Bureau of Statistics last Friday. This GDP result is the weakest since 2008/09 (1.9 per cent) when the Global Financial Crisis triggered a global recession.
Disappointing GDP growth was in large part the product of a lift in imports which had been flat the previous financial year. The rebound in imports largely offset a further solid increase in exports, meaning net exports made little contribution to growing overall GDP in 2016/17 (just 0.1 percentage points).
There was also a reduced contribution to GDP growth from household consumption expenditure as a consequence of sluggish growth in incomes. Household gross disposable income measured in nominal terms rose by 2.1 per cent in 2016/17, which is the weakest rise since 1961/62. Despite the slowdown, household final consumption expenditure still made the single largest contribution to GDP growth in 2016/17 (1.2 percentage points).
Private sector investment recorded its fourth consecutive annual decline as a consequence of a further fall in mining investment. However, the drag on GDP growth was lower than in 2015/16 (-0.7 percentage points versus -1.1 percentage points), which is hopefully a sign that the current mining investment cycle is closer to bottoming out.
Australia’s GDP growth for 2016/17 would have been even weaker were it not for stronger spending activity by the public sector. Public sector gross fixed capital formation rose strongly (by 16 per cent), making a 0.7 percentage point contribution to GDP growth, while general government final consumption expenditure made another larger than usual contribution (0.8 percentage points).
There are some positives in the latest national accounts figures: agricultural sector gross value added rose strongly (up 16 per cent) thanks to favourable seasonal conditions; the nation’s terms of trade bounced back (up 14 per cent), clawing back some of the losses that have occurred over the previous 4 years; and households enjoyed significant gains in wealth due mainly to appreciation in the value of land held by households.
The annual national accounts release referenced above provides no state-level break down of macroeconomic performance. State level national accounts data will be released separately in mid-November.
Inflation remains subdued, while electricity prices rise sharply
Latest estimates of consumer price inflation released by the Australian Bureau of Statistics last week indicate that inflation remains subdued despite tightening labour market conditions and a sharp lift in electricity prices. The eight-capitals Consumer Price Index (CPI) in seasonally adjusted terms rose by 0.4 per cent in the September quarter, equivalent to the 0.4 per cent rise recorded in the June quarter. Through the year to the September quarter headline inflation was 1.8 per cent.
Underlying measures of inflation remain below the Reserve Bank of Australia’s target rate for monetary policy of 2 to 3 per cent. The trimmed mean measure of CPI rose by 1.8 per cent through the year to the September quarter 2017, while the weighted median measure rose by 1.9 per cent. In fact, both measures of underlying inflation recorded weaker growth in the September quarter compared to the June quarter.
Adelaide recorded the largest rise in CPI of any capital city for the September quarter (1.1 per cent compared to 0.6 per cent nationally in original terms). The result for Adelaide is largely explained by a surge in electricity prices, which rose by 21 per cent for the quarter. Other cities that recorded relatively large increases in electricity prices included Sydney (15 per cent), Perth (9.7 per cent), and Canberra (11 per cent). Nationally, retail electricity prices rose 8.9 per cent. There was also a relatively large increase in prices for gas and other household fuels, both for Adelaide (up 8.4 per cent) and nationally (up 5.2 per cent)