Tuesday, 6 December 2011

GDP up 1.0% - A Nice Result

The 1.0% rise in GDP in the September quarter was a solid result. It follows the flood rebound induced 1.4% rise in GDP in the June quarter and the flood dampening fall of 0.7% in March quarter GDP.

The numbers are still be messed around by that flood impact and the subsequent recovery. Suffice to say, if we look at the last three quarters, GDP growth has averaged around 0.6% per quarter or an annualized pace of 2.5% - coincidently (perhaps) this is the same as the through the year growth rate of 2.5%.

The economy is expanding at a reasonable clip – clearly not quite fast enough to stop the unemployment rising a bit (from 4.9% to 5.2% with an update tomorrow), and growth is clearly at a pace that is soft enough to help inflation pressures ease (underlying inflation has fallen from 3½% to below 2½%).

The numbers (unsurprisingly) fit pretty closely with the revised forecasts of Treasury and the RBA – with the two interest rate cuts likely to put some sort of floor under the 2.5% GDP growth momentum currently being recorded.

Whatever the factors influencing GDP growth in recent years, it is interesting that it has been over 3½ years (14 quarters) since through the year growth exceeded 3.0% - quite amazing really. The average rate of GDP growth over the last 3½ years has been just 2.0% - which is very weak compared to trend, but a factor that has clearly driven the easing in capacity constraints and the sharp drop in inflation.

The mix in the growth data are generally favourable: solid growth in personal consumption, falls in public demand (further unwinding of the stimulus) and big growth in business investment (mining). Net exports cut growth and it would be nice to see net exports adding to growth rather than subtracting, but the CAPEX boom is fuelling strong import volume growth and this is the price paid for the investment boom.

The end point is that there is not a lot of extra news for policy makers in the result. Let’s have a look at the jobs numbers tomorrow for a bit more information on the state of play in the labour market and then the long wait until the December quarter CPI on 25 January which should give the RBA the ammo it needs for another 25 basis point cut.

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