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Thursday, September 04, 2008

Australia's unlikely engine room

Victoria has emerged as a surprise engine room of the Australian economy with the latest figures suggesting that it was responsible for almost half of the nation’s economic growth in the June quarter.

The National Accounts show that Victoria contributed 0.4 percentage points to domestic demand growth in the quarter (p7), almost half of the nationwide total of 0.9%.

Western Australia, previously Australia’s economic powerhouse, contributed a smaller 0.3 per cent.

NSW became a drag on the nation’s economy in the quarter as its economic activity contracted 0.1 per cent.

Victoria’s Treasurer John Lenders hailed the news saying it reflected strong growth in private business investment, in housing investment and in public investment.

Australia’s Treasurer Wayne Swan described the national result as “ a solid number, especially considering the global challenges that we are facing and what is happening elsewhere in the developed world”...

Australia’s economy grew by 0.3% in the June quarter, well down on the 0.7 per cent recorded in the previous quarter but enough to generate a respectable annual growth rate of 2.7%.

While consumer spending dipped slightly losing 0.1 per cent in its first decline in 15 years, business investment surged, climbing 4.6% in the quarter while public investment - much of it by state governments - climbed 2.4%.

“Growth is rebalancing away from household consumption towards business investment and exports. It’s in line with the Reserve Bank’s script,” said TD Securities economist Joshua Williamson.

“It would be hard to conjure up a better result. It’s a fantastic report card,” said Commsec economist Savanth Sebastian.

“For the Reserve Bank it will be pleasing. It confirms the economy didn’t fall off a cliff,” said ANZ economist Katie Dean. “By itself it won’t trigger an October rate cut.”

Some parts of consumer spending were quite badly hit in June quarter, especially spending on transport which slipped 2% in real terms as people took fewer trips in response to the higher price of petrol.

But the income available to Australians kept rising. The accounts show that Australia’s terms of trade, a measure of international buying power, soared 13% – the biggest quarterly boost in 35 years.

The statisticians preferred measure of economic welfare, “real net national disposable income,” climbed 3.6 per cent in the quarter and 6.6% over the year as a result of the improved terms of trade.

More of the extra income flowed through to profits than wages with profits hitting a record 28.4% of national income and a broad measure of wages sliding to 52.4%, its lowest level since 1965.

Mr Swan said that Australia seemed to be “defying gravity” with five of its fellow developed economies recording zero or negative growth in the same period. Japan was down 0.6%, Germany 0.5%, France 0.3%, Italy 0.3% and the UK zero.

“That’s what’s going on elsewhere in the world. While growth has stalled or gone backwards in the world’s largest developed economies, we still have it,” the Treasurer said.

The Shadow Treasurer Malcolm Turnbull said the results were a tribute to the resilient economy bequeathed to Labor by the Coalition.