Australian economic growth accelerated in the September quarter of 2015, increasing 0.9% leaving the annual rate of growth at 2.5%. Markets has been expecting a quarterly increase of 0.8%, with the annual rate ticking up to 2.4%.
The increase extends Australia’s phenomenal economic record, having not experienced a technical recession – two consecutive quarters of negative economic growth – since the June quarter of 1991.
That’s not a bad performance at all – 24 years of continued economic growth through period of turmoil such as the Asian and global financial crises.
The largest contribution to economic growth during the quarter came from exports of goods and services, up 4.6%, contributing 1.0 percentage points to the final growth figure. Imports fell by 2.4%, contributing 0.5 percentage points to growth.
The ABS note that the increase in exports was concentrated in commodities, which reflected strong growth in mining activity having been impacted by adverse weather conditions during the June quarter.
Household final consumption expenditure, the largest part of the Australian economy, increased 0.7% which contributed 0.4 percentage points to the quarterly GDP increase. Government consumption expenditure rose by a similar margin, contributing 0.1 percentage points to growth.
Gross fixed capital formation, both from the public and private sectors, partially offset the positive contributions to GDP listed above, largely due to weak mining and non-mining business investment and a reversal in government investment following a temporary boost military expenditure seen in the June quarter.
For the private sector, non dwelling construction dipped 5.3%, detracting 0.4 percentage points from growth, while machinery and equipment spending slid 4.6% in line with the weak business capital expenditure report released late last week. It detracted 0.2 percentage points from growth.
Public sector investment dropped 9.2% on the back of a fall in military spending, slicing 0.4 percentage points from the final GDP figure.
Elsewhere inventories subtracted 0.1 percentage points.
The full breakdown of the GDP report in seasonally-adjusted expenditure chain terms can be found in the table below, supplied by the ABS. The contributions to the quarterly growth figure are highlighted on the far right.
While an impressive headline result, as was the case in the June quarter where the economy grew by just 0.2%, temporary factors acted to amplify the quarterly figure. Net exports contributed a whopping 1.5 percentage points to growth, largely masking weakness from business investment.
Still, final household private consumption expenditure outperformed expectations, rising 0.7% for the quarter and 2.7% for the year. This contributed 0.4 percentage points to quarterly growth – a good sign that household confidence may be improving in line with recent improvement in the domestic labour market.
However, with the household savings ratio coming in at 9.0%, down just 0.1% from the June quarter, it’s clear that elevated levels of household caution still remain. The outlook for the labour market will likely determine whether households continue to save or spend.
With the boost from trade likely to continue in the quarters ahead as Australian LNG exports ramp up, robust household spending may help to underpin reasonable levels of growth despite expected weakness from business investment and diminishing residential construction in the period ahead.
Perhaps reflective of the data being dated – it’s backward looking rather than a leading indicator – or the fact that national incomes growth remains exceptionally weak thanks to falling commodity prices, markets have largely ignored the result. The Australian dollar, having popped as high as .7342 initially on the headline beat, is now trading at .7312 while the ASX 200, already soft prior to the GDP release, remains in negative territory at 5256.7, down 0.24%.
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