Australia’s GDP Surges .06% in June Quarter

Posted 7 September 2009

Economists around the world are calling Australia the ‘wonder from down under’ having dodged another recession bullet with GDP growth of .06% in the June quarter, twice what many forecasters expected. That leaves us with 19 straight years without a technical recession and the only developed nation not to go into one during the GFC. But before I launch into more eco babble let’s define a few things. The Gross Domestic Product or GDP measures a nation’s economic growth and the value of all the goods and services it makes in a year. To give you some perspective, Australia’s annual GDP has averaged around 3.6% for the past 15 years or so and, while still way below past trends, the latest figures compare well to the average 4.6% contraction recorded by the G7 economies over the same period. For the record, the OECD just revised its economic growth forecast for the G7 nations this year to an average -3.7%, up from the -4.1% it predicted in June. To enter a technical recession you need two quarters in a row of economic contraction, or negative GDP. Although we had a negative figure in the December quarter, we have not had another.

ust ask Treasurer Wayne Swan and the June quarter GDP growth was much ado about stimulus in fact he said the word stimulus 37 times during his 29-minute media conference about the results. Thanks to the cash splash disposable household income went up by 2.3%. This figure was also helped by low lower interest rates which, according to ABS statistics, reduced the amount of household income absorbed by interest payments to 9.1% – it was14.4% this time last year. In the business sector the small and medium business tax incentives drove strong investment and introduced a broad trickle-down effect for the whole economy. Specifically the treasury estimates most business investment growth was drawn from the legions of company cars purchased to take advantage of the tax incentives.

Looking ahead now and as the effects of the cash splash start to fade, the much-touted infrastructure programs should pick up the slack and provide us with more enduring and positive growth. Also the government will probably use its better-than-expected fiscal position as a springboard for a more concerted attack on that nasty budget deficit. In other words, it looks like Australia’s green shoots are starting to flower.

In other news…

Overall this beautiful set of numbers is likely to see the RBA and Treasury revise up their economic forecasts. The good news is these figures add to the general sense of confidence that the Australian economy has weathered the global storm very well and that the government’s deficit will be smaller than predicted in the May budget. However, the bad news, according to NAB’s Group Chief Economist Alan Oster, is that rates will probably go up as early as November. Alan had previously tipped two 25 basis point increases in February and March but now reckons they’ll come in November and December followed by another 25 basis point increase in February.