GDP data show Australia in income recession; falling dollar a 'silver lining'

Updated

The Australian dollar has dropped below 84 US cents for the first time since July 2010 on economic growth less than half what was expected.

The Australian Bureau of Statistics gross domestic product (GDP) data show the economy expanded just 0.3 per cent in the September quarter and only 2.7 per cent over the year to September 30.

Economist forecasts in a survey by Bloomberg centred on 0.7 per cent growth in the September quarter and 3.1 per cent for the year.

That saw the dollar slide from around 84.5 US cents before the 11:30am (AEDT) release to 83.95 US cents by 11:47am (AEDT).

In further bad news, real gross domestic income actually went backwards by 0.4 per cent in the quarter due in large part to a 3.5 per cent seasonally adjusted fall in the terms of trade during the three months to September.

The ABS measure of real net national disposable income per capita fell 0.8 per cent in the quarter and 1 per cent over the year.

That means that even though the economy grew, Australians became worse off as the prices for the nation's exports fell steeply.

AMP Capital Investors chief economist Shane Oliver told Reuters that Australia is now in an income recession.

"The fact that GDP was lower than expected, that national income has fallen again in an income recession, suggest to me the risk on interest rates is all to the downside," he said.

However, he said that increased chance of further rate cuts next year might offer a boost to previously struggling sectors.

"The mining boom is in reverse, terms of trade is collapsing and so the Aussie dollar is going down that will help trade exposed sectors like manufacturing, tourism, higher education and also resources, including farmers and mining companies," he told Reuters.

"The lower Aussie dollar is a silver lining in all this."

Treasurer Joe Hockey agreed that the lower dollar should help boost future growth, but denied that Australians would feel like they are in a recession based on two quarters of falling national income.

"Importantly, we are seeing strong export growth and the hardest part of the last few months has been that the Australian dollar has remained stubbornly high and normally that is available to cushion a significant fall in terms of trade," he told reporters at a press conference in Canberra.

"The Australian dollar fell significantly from around the middle of September until today and that is much welcomed."

Mr Hockey also argued that the carbon and mining tax repeals boosted the economy, even though growth slowed in the first quarter following the taxes' removal.

"Thank God we got rid of the carbon tax, which hit at the beginning of the September quarter. Energy consumption lifted, that is quite a stark indicator of how significant it's been," he said.

Exports prop up economy

The headline GDP figure was boosted by solid household spending growth (0.4 percentage points) and net exports (0.8 percentage points) - although this measure of exports looks at the volume being sold, not the price received.

The biggest drags on growth were falls in business (0.5 percentage points) and government (0.2 percentage points) investment, with the end of the mining construction boom weighing on private spending.

NAB senior economist David DeGaris says it is a particularly weak result once you take exports out and focus solely on domestic demand.

"One measure of the domestic economy's growth is what's called domestic final demand, that actually contracted by 0.3 per cent in the September quarter and just growth of 0.9 per cent over the course of the past year, so quite a soft domestic economy," he told ABC News.

"The business investment downturn that we've seen in today's national accounts is really consistent with the resource sector coming off its peak, but we [also] had quite soft growth in household consumption."

That soft spending growth of just 0.5 per cent in the quarter and 2.5 per cent over the past year was despite another fall in the household savings rate to 9.3 per cent from 9.9 per cent a year ago.

Despite the recent falls in mining investment, the expansion in production has seen it contribute most to growth over the past year (0.9 percentage points), while finance and insurance and construction also added strongly to growth.

In contrast, agriculture, fishing and forestry subtracted 0.2 percentage points from growth, as did transport, postal and warehousing.

Topics: economic-trends, money-and-monetary-policy, australia

First posted