At last some good news on the economy. This week's national accounts for
the December quarter show the economy speeding up and, in the process,
starting its fabled "transition" away from being driven largely by
mining investment.
The economy's medium-term "trend" rate of growth in
real gross domestic product - the rate that holds unemployment constant
- is thought to be 3 per cent a year. For much of last year the economy
was seen to be travelling at only about 2.5 per cent, thus leading to a
slow but steady rise in unemployment.
But this week's accounts from the
Bureau of Statistics show real GDP growing by 0.8 per cent in the
December quarter and by 2.8 per cent over last year. Applying a bit of
judgment, we can say the economy is probably now growing at an
annualised rate of about 2.8 per cent.
This isn't enough to stop
unemployment rising - and we really need a period of growth well above 3
per cent to get the jobless rate heading back down to its own trend
level of about 5 per cent - but it beats 2.5 per cent.
And, as I say,
the accounts show reasonably convincing evidence the "rebalancing" of
the economy - away from mining investment and towards the other sectors
of the economy and sources of growth - is finally under way.
After
quite a few quarters of weakness, consumer spending grew by 0.8 per
cent in the quarter and by 2.6 per cent over the year. This
strengthening is a bit of a surprise when you remember household
disposable income is only crawling ahead, with no growth in employment
and very low rises in wages.
Arithmetically, the explanation is a
fall in the household saving rate from 10.6 per cent of disposable
income to 9.7 per cent. But this ratio is volatile, so I wouldn't take
it too literally. It's possible households have shaved their rate of
saving - say, from the high 10s to the low 10s - but I doubt it signals a
return to the low saving rates we saw in the couple of decades before
the global financial crisis.
The second sign of rebalancing was
long-awaited real growth of 1 per cent in spending on home building,
including renovations. This is not unexpected considering the rises in
established house prices and in the issue of local government building
permits.
More recent "partial indicators" for the month of January
confirm that consumption and home building have picked up. Nominal
retail sales grew by a strong 1.2 in the month to be up 6.2 per cent on a
year earlier. And residential building approvals rose strongly in the
month to be up 34 per cent on a year earlier.
Public sector spending
rose by 1.1 per cent in the quarter, contributing 0.3 percentage points
to the overall growth of 0.8 per cent in real GDP. Most of this came
from public infrastructure spending.
But now we get to the bad
news. Most of the growth I've outlined so far was offset by a sharp fall
in business investment spending, which dropped by 3.6 per cent.
Most
of this decline is explained by a drop in mining investment as the
investment phase of the resources boom comes to an end. It's now clear
mining investment peaked about a year ago.
It was our knowledge
that mining investment was about to fall back from the dizzying heights
it reached that caused us to see the need for "transition" or
"rebalancing" in the economy (plus a few other buzzwords I've
forgotten).
But this brings us to the weak part in the transition
so far. Although most of the fall in total business investment is
explained by mining, it's clear investment spending in the non-mining
sector also fell - which is not what the doctor ordered. Rough estimates
by Kieran Davies, of Barclays bank, suggest it fell by 1.2 per cent in
the quarter and by 7 per cent over the year.
So if most of the
growth in domestic demand in the quarter was cancelled out by the fall
in business investment, where did the overall growth in aggregate demand
of 0.8 per cent come from? From the one place left: net external
demand, otherwise known as "net exports" - exports minus imports.
The
volume (quantity) of exports grew by 2.4 per cent in the quarter and by
6.5 per cent in the year, whereas the volume of imports fell by 0.6 per
cent in the quarter and by 4.6 per cent in the year.
Put the two
together and net exports made a positive contribution to overall growth
of 0.6 percentage points in the quarter and 2.4 points over the year.
Why
are exports growing so strongly? Mainly because of rapid growth in our
exports of minerals and energy as new mines come on stream. Why are
imports so weak? Partly because domestic demand has been weak, but
particularly because of the fall off in mining investment, which
involves a lot of imported equipment.
So the investment phase of the
resources boom is coming to an end and leaving a hole in the economy,
but the production and export phase of the boom is helping to fill the
hole - helping to tide us over while the non-mining economy is getting
back on its feet (to mix a few metaphors).
The resources boom's
now favourable effect on net exports translates into a much lower
current account deficit on our balance of payments. Whereas it used to
get as high as 6 per cent of GDP in the old days, and averaged about 4.5
per cent, for the December quarter it was just 2.6 per cent.
Maybe the economy has a future after all.
