Australia received and unexpected, and welcome, economic surprise a fortnight ago. Bucking expectations for something much weaker, Australian economic growth grew by 3.0% from the fourth quarter of 2014, indicating that the nation’s economic transition was gathering some significant momentum.
However, that was the backward-looking picture from near three months ago, and, if the latest Australian economic indicator are anything to go by, that momentum may be already waning.
This is no better portrayed than in the latest “Stateometer” for January, released by the ANZ earlier today. After powering higher in the latter parts of 2015, economic activity levels cooled noticeably in the early parts of the year on the back of a deterioration in Victoria and Queensland.
The Stateometer is a gauge of economic performance that uses 16 individual indicators to provide a timely pulse of activity levels across the nation.
The chart below, supplied by ANZ, reveals the economic performance of each state and territory in the first month of 2016. Those states and territories in the top right quadrant are growing above trend, and accelerating, while those in the bottom left quadrant are growing below trend, and decelerating.
Most of the states and territories shifted downwards to the left, indicating a loss of economic momentum across the broader Australian economy.
The broad trends remain positive,” said Kirk Zammit and Felicity Emmett, economists at ANZ.
“Economic activity across the east coast states are close to or well-above their respective trend rates of growth. However, we will be keeping a close eye on Queensland and Tasmania with both states experiencing some deceleration in economic activity recently.”
While New South Wales and Victoria, the largest states both by population and economic output, continue to outperform other parts of the country, Zammit and Emmett expect the strong momentum seen at the end of 2015 will likely cool in the year ahead.
“New South Wales and Victoria continue to drive the national economy, with economic activity well above trend,” they said. “But momentum in the two largest states is likely to ease in 2016 after the rapid expansion over the latter part of 2015 as the stimulus from the housing sector and the low AUD moderates. However, it’s too early to tell whether we are at a turning point, as month-to-month movements can be volatile.”
Though they admit that it’s too early to tell whether the deceleration seen in January will be the start of a longer, lasting trend should economic growth in these states cool it means that the burden of powering the national economy will be left to the other states and territories.
Given weakness in commodity markets is likely to persist, this suggests that the nation’s non-mining sectors – in particular households – will be required to keep on spending.
As has been outlined by many analysts, including the RBA themselves, that is largely predicated on strong labour market conditions continuing in the year ahead. Recent leading labour market indicators have been weakening, hinting that a splurge in household spending is anything but guaranteed.
Tomorrow’s jobs report for February, along with other upcoming labour market indicators, will likely determine not only if this will likely occur, but also if further rate cuts from the RBA will be delivered in the months ahead.