2000 turned out to be quite a good year for Australia, much, much better than we all thought a year ago.
2010 looks like turning out to be better.
The solid 4th quarter economic growth figures from the Australian Bureau of Statistics revealed the extent of the improvement over the year.
The ABS reported yesterday that the economy grew 0.9% in the December quarter, just above where many market forecasts sat, and 2.7% for 2009. Non-farm GDP grew 2.5% over the year.
Both were higher than the Reserve Bank estimate of 2% and 2.25% respectively in the first set of forecasts for 2010, issued last month.
A year ago though, the central bank forecast growth of just 0.5% for the year, a forecast which many analysts rejected as the Australian economy was buffeted by the global crisis and credit crunch.
For the year GDP reached $1.2 trillion, or $55,103 for every Australian man, woman and child.
That’s the highest ever, unlike many other countries whose GDP is still under 2008 or 2007 levels.
In another positive, growth in the September quarter was revised up to 0.3%, up from the first estimate of 0.2%.
That made Australia the best performing major western economy in 2009, while growth in the final quarter was better than Europe (Germany and the UK especially).
US growth in the 4th quarter was around 1.4% (5.9% annualised) but that was driven by heavy stock rebuilding and government spending.
Growth in China was faster, around 2.7% quarter on quarter (10.7% annualised). Japan’s was also faster quarter on quarter, but that was from September quarter growth when growth almost collapsed back into the red.
In fact rather than forcing the Reserve Bank to lift rates again, as suggested by many commentators, the growth figures supported the central bank’s decision this week to lift rates several more times over the coming year.
This was outlined by RBA Governor, Glenn Stevens in Tuesday’s post board meeting statement:
"The Board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average."
The Reserve Bank in fact sees the economy as able to grow on its own, without any need for additional stimulus from an expansionary monetary policy, so rates will rise back to a neutral setting, to allow the expansion to continue at a safe pace.
And if you look at what drove growth in the final quarter, you find further confirmation of the RBA’s stance.
There was a 10.2% jump in government investment, a solid 3.5% rise in private investment and a 0.7% rise in consumption by households.
Machinery and equipment spending surged 10.9% in the quarter, adding 0.8 percentage points to GDP. Household spending rose 0.7% and government spending jumped 1.8%.
The rise in machinery and equipment spending and private investment reflect the re-emergence of the mining boom, especially in the December quarter.
Government investment will gradually fall away this year but business investment is projected to increase as the year goes on (the first estimate of business capital spending for 2010-11 is already above $100 billion, the highest ever).
The central bank sees inflation and wages as being under control, but wants to push rates to a level to try and head off any resource bottlenecks or cost pressures emerging under pressure from the growing mining boom.
Growth in the expenditure measure of GDP was driven by a 3.5% increase in private investment, a 10.2% increase in public investment and a 0.7% increase in household expenditure.
Offsetting these increases was a fall in net exports. That was due to imports (up 7.7%) growing faster than exports (up 1.7%).
The ABS said that "In seasonally adjusted terms, during the December quarter, real gross domestic income increased by 1.5%, while the volume measure of GDP increased by 0.9%, reflecting an increase of 2.9% in the Terms of trade, 1.1% in the September quarter. (Terms of trade fell 11.2% over 2009).
"That improvement in the terms of trade will grow in coming months as higher prices (and volumes) for iron ore and coal are reported by exporters from contract talks with Asian buyers.
"The industries that provided the main contribution to growth in the production measure of GDP in the December quarter were manufacturing with a 5.1% increase in seasonally adjusted volume terms and wholesale trade with a 3.6% increase in seasonally adjusted volume terms," the ABS said.
NSW grew 2.4% for the year, WA 2.6%, Victoria 3%, Qld 1.3%, South Australia 0.6% and Tasmania 1.6%.
