GDP up 3.1pc, fastest annual pace since mid-2012

Jul 2016 - News

The economy accelerated to its fastest annual pace in 3 1/2 years, smashing expectations both across the market and within the Coalition, driven by a massive export spurt and a firm boost in household spending.

Gross domestic product rose 1.1 per cent from the previous quarter, when it rose by an upwardly revised 0.7 per cent, the Australian Bureau of Statistics said on Wednesday.

Annual growth increased to 3.1 per cent from downardly-revised 2.9 per cent in the December quarter, beating economist’s forecasts for a 2.8 per cent gain over the year.

Quarterly growth was expected to come in at 0.8 per cent.

Exports accounted for almost all the growth in the quarter, adding 1 percentage point to quarterly growth. Households generated the equivalent of another 0.4 of a percentage point.

The figures – which triggered a sharp rally in the dollar to US72.88¢ from around US72.44¢ – also underscored the ongoing weakness in incomes, whether for companies, workers and governments.

Real net national disposable income per capita shrank by 0.1 per cent in the March quarter, after falling by 0.5 per cent in the previous three months, and by 2.6 per cent over the year.

“The Australian economy finds itself with a unique set of circumstances that will continue to perplex policymakers and complicate the interest rate outlook,” said Commonwealth Bank of Australia economist Gareth Aird.

“GDP growth is running at an above trend pace and the unemployment rate has been declining.  In isolation, two highly desirable outcomes.

“But wages growth is at its lowest level since the 1990s recession and consumer inflation has been falling. On the surface, these four outcomes occurring simultaneously is bizarre.

Mr Aird said much of the anomaly between those developments is explained by the fall in the terms of trade – a measure of export earnings – as well as soft domestic growth and a historically high underemployment rate.

 So far, so good,” said Prime Minister Malcolm Turnbull, who seized on the figures to warn that without tax reform the strong economic growth couldn’t be taken for granted.

“There is plenty of risk out there on the horizon. We are in an uncertain economic environment globally.

“Many opportunities, great opportunities but great challenges. You cannot succeed without a clear economic plan. Everything we have is encouraging companies to invest, to employ.”

“The Labor Party on the other hand wants to take economic growth for granted, just assume that everything will hum along without any intervention from government and at the same time, they seek to raise taxes on investment which will have the obvious consequences of less investment and fewer jobs,” Mr Turnbull said.

 Shadow Treasurer Chris Bowen said while the headline numbers were welcome they overshadowed underlying fragility.

“Lets be very clear – this figure is driven entirely by net exports,” Mr Bowen said. “Without net exports we would have had a flat quarter of economic growth.”

“This is not a plan for Australia’s future. We can’t rely on the government of China to be stimulating, we can’t rely on Australia’s LNG exports to drive our growth going forward.”

On Tuesday, official figures showed rising shipments and services exports – which includes education – triggering a narrowing in the current-account deficit to $20.8 billion from $22.6 billion.


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