The Australian economy grew 0.5% in the last quarter of 2014, for an annualised rate of 2.5% for the year.
It’s slightly below the 0.6%/0.7% range expected by the market. Many investment banks including Deutsche Bank and UBS had forecasts of 0.5%, but were warning of risks to the downside, so it’s not a terrible result, but it does reflect continuing weakness in the economy.
The ABS said the main contributors to the increase were net exports (0.7 points) and final consumption expenditure (0.6 points). Changes in inventories took off 0.6 points as businesses – mainly mining and manufacturing – ran down their stockpiles.
The decline continued in the terms of trade, which has been one of the key drivers of Australia’s growing structural problems in the federal budget because it affects tax revenue from the nation’s big exporters. The quarterly fall was 1.7%, following a 3.6% decline in the the previous quarter. The total decline in over the year was 10.8%.
The fall in inventories of 0.6% was the big drag on the result, and the breakdown by industry is reflective of the changes in the Australian economy away from growth driven by heavy industry. This chart shows that mining and manufacturing ran down inventories over the quarter, while wholesale traders and retailers built up stock. Look how much inventory the manufacturing sector lost:
Falls in inventory reflect one of two things: either companies were selling stuff so quickly they couldn’t restock fast enough, or they were running down stock down because they’re concerned about future demand. Especially for manufacturing, a sector in rapid decline in Australia, it’s almost certainly the latter. The build-up in retail inventories, however, shows that retailers may have been over-optimistic about sales in the lead-in to Christmas.
With the print being broadly in line with expectations the dollar has barely moved on the data.