After a brief foray into the red, Australia’s GDP is up on the same quarter a year ago (by a measly 0.4 percent). This was thanks to a strong March quarter in which GDP grew by the same percentage. The main factors driving the resurgence were reduced imports and stronger exports, as the A$ plummeted (from 85c to 65c against the greenback in three months) along with oil prices. These factors have also seen the balance of payments deficit fall by 27 percent in the March quarter, seasonally-adjusted.
The terms of trade fell 7.8 percent in the quarter as demand for Australian commodities continues to sag. 1.6 percent-points was contributed to GDP growth by falling imports, while 0.6 percent-points was due to stronger exports as the A$ fell. Strongly negative was business investment (-1.1 percent-points knocked off GDP growth), which is of some concern. Gone are the heady days of GDP contributions by mining and manufacturing; the winners now are government administration; and health and community services.
The balance of payments, while still strongly negative, was just -A$4.6bn in the March 2009 quarter, compared with -A$6.4bn the previous quarter. This was the result of the goods and services surplus rising and the investment income deficit falling. Both imports and exports fell in the quarter, but to varying degrees. As suggested by the GDP figures, a worrying factor is the drop in business investment, which led to lower imports of intermediate and capital products. In addition to the reduction in fuel imports, there was also falls in iron and steel (-35 percent); parts for transport equipment (-18 percent), and inorganic and organic chemicals (-21 percent).
Retail sales have risen for the last two months on a month-on-month seasonally-adjusted basis. This suggests there are signs of returning consumer confidence, boosted by recent tax cuts and other components of the fiscal stimulus package.
Nevertheless, the unemployment rate rose in the month, and is up 1.5 percent-points in the year. Interestingly, like in New Zealand, although this rate has risen, the number of employed people has grown in the last year (although by just 32,000) on a seasonally-adjusted basis. The labour force under-utilisation rate (unemployed plus underemployed) neared 14 percent in May 2009, up from 10 percent a year ago.
The wage price index rose 4.2 percent on a trend basis in the year to March 2009. Despite the hammering the industry has taken in recent months, the strongest gains were still in mining, followed by electricity and gas, and education.
Interest rates have remained constant since a 0.25 percent cut in early April. In the June Monetary Policy Statement, the Reserve Bank of Australia (RBA) Governor cited signs of global stabilisation as a reason for keeping the cash rate at 3 percent. In particular, the RBA is keeping a keen eye on the “recoveries” in high-growth economies like China.
- reprinted from BERL Forecasts June 2009