Solid economic expansion continues – The Bull

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Australia’s economy (measured by gross domestic product or GDP) grew 0.8% in the March quarter, rising 3.3% on the year. “Normal” growth for the Australian economy is around 2¼ percent.

In nominal terms, the economy grew 3.7% in the March quarter and 10.2% for the year.

The largest contribution to the expansion of the economy was inventories (+1.0 percentage point), followed by household spending (+0.8 pp), government consumption (+0.6 pp) , private and public investments (+0.2 pp). Net exports (exports minus imports) reduced growth by 1.7 percentage points.

Only agriculture, forestry and fishing (-5.8%), mining (-1.5%), renting, hiring and real estate services (-1.8%) and “other services (-0.4%) recorded lower production during the March Quarter.

The household savings rate fell from 13.4% to 11.4% during the March quarter.

In terms of productivity, GDP per hour worked increased by 1.7% in the quarter to reach 2.8% for the year.

Real unit labor costs fell 2.0% in the March quarter and fell 2.7% on the year.

What does it mean?

  • The National Accounts release is the most comprehensive assessment of Australia’s economic performance, including economy-wide production and expenditure. But the release is dated – containing the latest data to be released for the quarter just ended. In fact, decidedly more timely readings for May came out this morning, covering house prices and manufacturing activity.
  • But all indicators show that the Australian economy is doing well, in fact very well. It might be an overstatement to describe the numbers as “a nice set of numbers”, but it comes close. This will encourage the incoming new government. But while the economy is sound, challenges abound, including supply chain issues, rising prices, labor shortages, the overall “living with Covid” environment (including influenza) and an unstable global environment.
  • The increase in inventory (particularly through imports) to address supply chain issues has been encouraging. Rising productivity and falling labor costs were also positive. More Australians moved during the quarter, resulting in spending exceeding income and leading to lower savings. Household savings are still well above pre-Covid levels. So lower savings, higher wages and more jobs point to further solid spending growth in the months ahead.
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