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GDP stumbles as investment falls

Reported in December, Australia recorded its first negative quarter of economic growth in almost six years, with September quarter 2016 seeing Gross Domestic Product (GDP) recorded at -0.5%. The result pushed national economic growth down to just 1.7% for the year-ending September, falling substantially from the 2.4% recorded for the year-ended September 2015.

Economists, commentators and government officials were quick to indicate they expect GDP to recover for the December quarter and during 2017. However, the same commentators were generally also quick to record their view that Australia’s economy is now far more fragile than was previously the case.

The chart below displays Australia’s economic growth on a seasonally adjusted basis, over the last four years.


To go straight to the dashboard and take a closer look at the data, click here.

More than words can, the picture created by the chart tells the story of Australia’s fragile economic growth. After stumbling along through much of the last four years, the one negative quarter immediately and dramatically caused full year GDP to turn down.

Indeed, as Greg Jericho, writing in The Guardian in early December wrote, “It’s the biggest drop in over 15 years, and gives us the worst annual growth this century outside the GFC period.”

Jericho goes on to record that within the OECD nations, Australia’s annualised GDP is mid-ranking, as displayed in the following chart from The Guardian.


The fact that Australia’s GDP is only mid-ranking, rather than lower, is a function of circumstances over recent quarters. In each of the prior quarters, Jericho points out that one factor or another (eg. Public sector investment in the June Quarter) saved Australia from negative economic growth. There was no savior in the September quarter.

Of the major contributors to economic growth, over the last year, several have made negative contributions, but none has been more dramatic than business investment, which as the chart below shows, has declined by 1.0% over the last year, worse than its 0.9% contraction of the prior year.


To go straight to the dashboard and take a closer look at the data, click here.

Imports also dragged GDP backwards (0.5% over the year), as did Non-dwelling construction (-0.3%), but there was essentially no good news on a GDP contribution front over the full year.

On a quarterly basis, the September quarter had only one positive contributor. Household Consumption expenditure rose a paltry 0.25% and just 1.5% on a annualized basis.

Of significant concern to the Australian Government is the evident cooling in the previously rampant Dwelling construction sector (see elsewhere in this edition of Statistics Count for the latest analysis). That sector has a long tail and clearly folds into a phase of Household consumption expenditure, meaning that its contribution lives longer and is often larger than other sectors.

The significant concern is that the traditional drivers of economic growth in Australia, Household consumption expenditure and dwelling construction, are not performing at their previous strong levels. What is more, they are not being replaced by solid performances from other contributors, with the languishing and persistently negative Business investment contribution being perhaps of greatest concern.

A lower growth Australia seems inevitable in the near to mid term.

Posted Date: January 25, 2017

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