The Q2 GDP out this morning was the most boring set of numbers imaginable. It’s even an old story: mining is still the truck to the Australian economic trailer.
The ABS said:
Latest Australian Bureau of Statistics (ABS) figures show that GDP, in seasonally adjusted volume terms, grew 0.6 per cent in the June quarter 2013.
Growth for the quarter was driven by a 0.2 per cent contribution from household final consumption and 0.2 per cent contribution from changes in inventories.
The industries that drove growth in the June quarter were Finance, Mining, and Construction. Finance industry contributed 0.2 per cent to GDP while the other industries each contributed 0.1 per cent to the increase in GDP.
The June quarter saw the Terms of trade increase 0.1 per cent.
There was a big asset transfer from public to private hands which basically netted it self out and the other major item of interest for me was the household savings rate which is sitting at 10.8%.
This is the big story of Australian Growth – I’m on the road today talking to some ADI’s and the story I am hearing and continue to hear is this: Australian borrowers are still active at the margin but the pace of the repayments and the level of savings that is subduing credit growth. As a result, it’s dampening overall economic activity.
It’s an economy at odds with itself. We had the very weak retail sales yesterday, the print of the Australian Industry Group’s performance of services index this morning in recession territory of 39.
If we look at the big contributers – Finance, Mining and Construction – this is not well balanced growth. While we should applaud Australia’s performance in aggregate terms large swathes of the economy are still underperforming and will continue to do so.
And here is the reason.
The RBA released its monthly chart pack today which is a must read if you want to get a feel for what is going on in the world and here at home. But the chart that sums up the conundrum of generational low interest rates and no traction is the one that shows Household debt to income and interest payments.
After all this time and all these years and all the RBA interest rate cuts Household interest costs are still yet to hit the lows we saw in the GFC. Why? Because Household debt is still so high.
The period of transition to a more balanced economy is going to be a difficult one – these data show that.
Like many countries around the world Australian households need to deleverage, So lets rejoice in the mining boom, in the improvement in prices for Commodities recently and in the holding up of export volumes, otherwise Australian growth would be much weaker.
Greg McKenna is an active currency trailer and is currently short AUD.
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