The Australian Bureau of Statistics has just released GDP data for the first quarter of 2014 which was stronger than the market expected printing 1.1% seasonally adjusted for the quarter as measured by the headline “chain volume measure”.
This took the year on year growth rate to a very solid – an importantly for momentum into the second quarter and the outlook for RBA rates – 3.5%.
The break up of the data showed that mining remains the key driver of the Australian economy at the moment with the ABS noting:
In seasonally adjusted terms, the main contributors to GDP were Mining (up 8.6%), Financial and insurance services (up 2.8%) and Construction (up 3.0%). Mining contributed 0.9 percentage points to the increase in GDP while Financial and insurance services and Construction each contributed 0.2 percentage points.
In terms of the easiest way to view GDP which is in the simple equation form where…
GDP = C + I + G + (X-M)
GDP equals consumption plus investment plus government plus exports minus imports
… growth looks solid and I am encouraged by the fact that Consumption rose 0.3%, Investment (Total Private Gross Fixed Capital Formation) was 0.2% higher while Net Exports (X-M) added 1.4% to GDP. On the negative side it is no surprise that Public gross fixed capital formation detracted 0.2% from growth or that inventories took 0.6% from growth in an uncertain world.
So while yes we can say that a large portion of the growth was in mining and while many are already saying that this is a bad thing, and worry that it can’t be continued, surely this is exactly what Australia wants – mining to persist in strength but not be so over the top that the RBA needs to dampen domestic demand by hiking rates any time soon.
In this way the transition can continue.
Sounds very Goldilocks to me and helps explain why the RBA remained relatively upbeat, if cautiously so, after yesterday’s board meeting.
It’s now down to consumer confidence and employment to see just how much momentum might have been lost by the budget.