Australia stumbles to economic record
The Australian economy extended the period of economic expansion to 26 consecutive years, defying the global impacts of the Asian Financial Crisis, the Dot-Com crash and the GFC.
This as the March Quarter of the national accounts showed the national economy expanded by 0.3 per cent during the March quarter and was up 1.7 per cent on the previous year.
General government and household expenditure combined to add 0.5 percentage points to the GDP result while inventories added a further 0.4 percentage points. Net exports was a big negative, subtracting 0.7 per cent from growth, with bad weather hampering commodities exports.
Meanwhile private investment continues to be a drag on growth with a -0.1 point contribution. In recent years, mining investment was the weakest segment of this category. However, this latest data showed housing construction and machinery and equipment investment have replaced mining as the biggest drag on investment.
At the state level, data on State Final Demand was released. This data is a good indicator of local activity and is similar to Gross State Product but excludes the impact of trade.
Queensland SFD was flat through the March quarter but was overall 1.6 per cent higher than the year prior. This result occurred with Cyclone Debbie impacting activity in the final week of March.
The rate of growth in SFD has been sluggish for several years now and is reflected in the elevated level of the unemployment rate. The transition following the mining investment boom has proved difficult with both the state and national levels of domestic demand running well below long-term trends.
This past quarter was highlighted by the steep decline in Private Gross Fixed Capital Formation (private investment) which subtracted 0.6 percentage points from growth. Behind this decline in private investment was a 9.4 per cent fall in dwellings construction activity with the apartments segment the key area of weakness. The construction pipeline of apartments has started to shrink in recent periods as the number of apartment completions have started to outnumber the number of new approvals.
The increase in demand from the public sector mostly offset the declines in private investment. General government consumption expenditure (Local, State and Federal) increased by 1.7 per cent during the quarter, while publicly funded investment rose 4.3 per cent. These categories combined to add 0.5 percentage points to growth.
Finally, household consumption expenditure expanded 0.2 per cent during the quarter and contributed 0.1 percentage points to growth. The data confirms previous retail sales figures which showed that retail volumes had marginally declined during the quarter. Instead, the source of the increased household expenditure was due to consumption of services such as utilities, dwelling costs, transport, education, financial services and health.
Looking ahead, there should be some degree of rebound in activity during the June quarter.
Retail sales figures for April showed increased expenditure on food and the replacement of household items as the recovery following Cyclone Debbie commenced. Similarly, reconstruction activities will boost infrastructure spending in a sector which was already beginning to gain momentum.
However, offsetting factors will include lost output due to the cyclone particularly impacting the tourism, mining and agriculture sectors. The decline in residential construction activity will be a further drag on growth.
With the Queensland State Budget to be delivered next Tuesday, CCIQ is looking to the Palaszczuk Government delivering a Budget which looks to kick-start activity across the state.
Read CCIQ’s 2017-18 State Budget Submission here.