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Thursday, 5 June 2014

Growth smashes expecations

Economy grows very strongly

The ABS released the Australian National Accounts yesterday, and, well, an upside surprise, with the economy growing by 1.1% over the first quarter over the year and a very satisfying 3.5% over the past year.

That smashed the expectations of the market and now tallies an incredible 90 quarters since we came out of the last recession in 1991 (click chart):

The growth in the economy for the quarter was driven overwhelmingly by booming exports, particularly of bulk commodities.

The housing industry is starting to make its much-needed contribution, but it will still need to do more - much more - thus necessitating lower interest rates for longer (click chart):

As always there are various question marks about the rate at which the economy can continue to grow at going forward.

Commodity prices have slipped since the first quarter ended, there are doubts about the longevity of the housing construction boom, and consumer spending is apparently going to dry up due to confidence being sapped by the Budget, though personally I don't believe that will happen - people with surplus money in their pockets will probably keep spending it. 

With net exports contributing a crunching 1.4% to growth in the quarter, we should be thankful to our mining states, Western Australia in particular, for keeping the economy humming along.

As I looked at here yesterday, export volumes in the Pilbara have continued to expand apace throughout the second quarter too (click chart):

Charts are a bit boring when it comes to mining exports - look up on the internet some of the photos of the iron ore being shipped out of the Pilbara - a truly awe-inspiring sight (note: resist ore puns here).

By state

Interestingly, if one looks at state final demand, which excludes the impact of booming net exports, there is one state which is towering head and shoulders above the rest (click chart):

Economic activity in New South Wales is exceptionally strong, with jobs growth, retail trade and construction (both residential and non-residential) all performing in a very robust manner.

With some colossal projects underway and a new major financial hub being carved out, I believe that Sydney especially will continue to go from strength to strength.