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Wednesday, 6 September 2017

Economy does...OK

Economy grows 0.8pc

Solid contributions from LNG exports, household consumption, and government spend saw the economy grow in the June 2017 quarter.

Coal exports were held back a little by flooding and the tail end impact of Cyclone Debbie, but will presumably pick up again as the year rolls on.

Totting it up the economy grew by +0.8 per cent in the June quarter, which is far from a bad result.

In fact, the economy has been racking up expansion for 26 consecutive years now! 

Annual GDP growth remains pretty tepid at +1.8 per cent - and dismal in per capita terms - but with a negative print to drop off next quarter there appears to be a fair chance that annual growth could be heading back towards +3 per cent soon enough. 

The terms of trade rebound suffered a setback this quarter, although this index remains nearly 15 per cent higher than a year earlier, and spot prices potentially point to another better period ahead. 

As a result, this was a weaker quarter for nominal GDP, while the respective measures of domestic income, national income, and disposable income all declined in real terms. The second half of the year has potential to be a better one in this regard. 

Looking at GDP per capita over the very long term you can see how the solid rate of growth was sustained through the early phase of the mining boom, but has since slowed (albeit nudging a fresh high in the June 2017 quarter). 

Finally for this blog post, the derived household saving ratio was reported 4.6 per cent. I haven't read much social media today yet, but this is nearly always referred to as households plundering or raiding their savings - whereas in fact the ratio remains positive and in aggregate household savings are tracking at a high level after 11 consecutive years in positive territory.

As you can see the household saving ratio has declined in recent years - which is after all partly the point of low interest rates - and this helped household consumption to contribute handsomely to economic growth in the June quarter. 

At the state level, quarterly final demand came in with robust readings from South Australia, Victoria, New South Wales, and Tasmania, but was negative in Western Australia and the ACT, and very negative in the ailing Northern Territory. 

The wrap

Overall, this was a bit of a mixed result as you can see from the selection of figures pulled together above, and importantly there is precious little sign of stronger wages growth in evidence yet. 

Partly for this reason, and with dwelling construction set to decline in 2018, there appears to be little prospect of higher interest rates for a while to come. 

Westpac analysts believe that the re-weighting of the December inflation figures at the end of the calendar year could lower their forecast for the core rate of inflation by up to 0.3 percentage points, which would well and truly put rate hikes on the back-burner.