Australian economic growth tumbled in the September quarter, logging the largest contraction seen since the global financial crisis.
According to the ABS, real GDP in seasonally adjusted chained volume terms fell by 0.5%, leaving the year-on year increase at 1.8%.
Markets had been expecting a quarterly decline of 0.1%, leaving the year-on-year growth rate at 2.2%.
It was the largest quarterly decline since Q4 2008, and the slowest year-on-year expansion since Q3 2009
In per capita terms, taking into consideration the increase in Australia’s population, real GDP fell by a larger 0.8%, a factor that may receive more attention than usual given the debate over immigration levels that has flared in recent days.
Like headline GDP, it too was the largest quarterly decline since late 2008.
And it was only the fourth quarterly contraction reported since Australia’s last recession in mid-1991.
The ABS said that economic activity contracted in a number of areas during the quarter.
“Private investment in new buildings detracted 0.3 percentage points (ppts) from GDP growth, while new engineering and new and used dwellings detracted 0.2 and 0.1ppts respectively. Public capital expenditure detracted 0.5ppts from growth as it declined from elevated levels in the June quarter. Net exports detracted an additional 0.2ppts from growth,” it said.
Household financial consumption expenditure, the largest component within the Australian economy, grew by 0.4% during the quarter, contributing 0.3ppts to the GDP figure.
This was assisted by a reduction in the household savings ratio which fell from 6.7% to 6.3%.
This table from the ABS shows the percentage change by individual GDP component from an expenditure chain volume perspective. We’ve highlighted the amount each component added or contracted from quarterly GDP on the right hand side:
And here’s how final state and territory demand performed over the quarter in chain volume terms, courtesy of the ABS.
Declines were recorded in Western Australia, Victoria, Tasmania and the ACT. That was partially offset by by small increases of 0.1% apiece in New South Wales, Queensland and South Australia. The Northern Territory, at 4.7%, reported the largest increase in demand over the quarter.
While real GDP, that measured in volume terms, contracted, nominal GDP, taking into account price movements, fared better, registering an increase of 0.5%.
That was still below the 1.4% increase seen in the June quarter, and saw the year-on-year increase slow to 3% from 3.3%.
It was assisted by a 4.5% jump in Australia’s terms of trade, courtesy of higher commodity prices.
Nominal GDP is the broadest measure of income in the economy, and will likely help to boost company profits, employee wages and government revenues in the quarters ahead.
The GDP deflator — the broadest measure of inflation within the economy — rose by 1% in the quarter.
Real net national disposable income, defined as a broader measure of change in national economic well-being by the ABS, rose by a further 0.8%, the third straight quarterly increase and an acceleration on the 0.5% gain seen in Q2.
This increase may explain why the economy didn’t feel as weak as the real GDP figure would suggest, at least to some Australians.
So what to make of the GDP report, a stunningly-low reading compared to what Australians have become accustomed to over the past 25 years?
Craig James, chief economist at Commsec, didn’t mince his words, suggesting that while the decline may just turn out to be just a blip on the radar screen, it’s still a very important blip.
“Many Australians have become complacent. And that includes businesses and politicians,” he said following the release of the report.
“The only way the economy can grow is by Australians spending, investing and employing. Australians didn’t do this in the September quarter.”
James believes the economy was hit by a “perfect storm” last quarter, citing heightened political uncertainty in Australia, the UK and US.
“Clearly, when there is a lot of uncertainty around, consumers and businesses tend to delay decisions to spend, invest and employ,” he said.