Higher spending by consumers and government and a rebound in activity in service sectors like tourism and education helped the Australian economy to record its best growth in five years in 2015 of 3% for the year and a solid 0.6% for the quarter.
The fourth-quarter and full year performance was demonstrably better than many of other economics peers, such as the US, UK, many eurozone economies, NZ, China, Japan and Canada.
The higher-than-forecast growth of 3% is just under the 3.1% growth recorded in calendar 2011 and takes the economy back to around its trend growth line.
The main driver was the surprisingly strong performance in the December quarter and a big upgrade to the GDP result for the three months to September. The Bureau of Statistics said growth was a seasonally adjusted 0.6% in the fourth quarter, while growth in the September quarter was boosted from the already solid 0.9% to 1.1% growth.
The news saw the Aussie dollar jump past 72 US cents with the belief now there will be no more rate cuts, and the Aussie stockmarket, after starting with a solid jump, surged even further to end the day up 2.2%, and well above 5,000 points on the ASX 200.
Other markets in Asia surged with Tokyo and Shanghai markets up more than 4% yesterday.
The AMP’s Chief Economist Dr Shane Oliver said in a note yesterday that, ”The Australian economy grew a surprisingly strong 3% through 2015, as non-mining activity and export volumes helped offset the slump in mining investment. Growth is likely to slip back to around 2.5% this year, so a further RBA rate cut is still likely, albeit it’s a close call.
“Low interest rates, low petrol prices, the boost from the low $A, the improved performance of “low mining” states like NSW and Victoria and the likelihood that the slump in mining investment is getting close to the bottom are reasons not to get too gloomy on Australia and Australian assets,” he wrote yesterday.
Economists at the National Australia bank liked the GDP report, saying yesterday “Today’s GDP figures provide reassurance that the Australian economy remains resilient amidst an uncertain global backdrop and weak commodity prices.”
“Year-ended growth was 3.0%, the strongest rate since Q1 2014.The composition of the figures was particularly encouraging. Household consumption was strong at 0.8% q/q, and the household savings ratio dipped to 7.6%, the lowest since before the GFC. Also notable was the smaller-than-expected decline in business investment.”
GDP 1Y – GDP ‘resilient’ amidst an uncertain global backdrop
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The result came from a surge in domestic consumption by households, and strong government spending in the quarter, which offset the expected negative impact of the dying embers of the resources investment boom. Imports and exports cancelled themselves out.
The terms of trade fell 3.2% in the quarter and 12% through the year as the prices of key commodities such as copper, iron ore, gold, oil and gas and a host of other products sank like a stone. Not even the fall in the value of the Aussie dollar could offset the slide.
That crimped national income – hence a fall in the savings ratio to 7.6% in the quarter from 9.1% – but that is always revised upwards as the statisticians find more income in subsequent reports.
"The growth in household final consumption was reflected in the service industries of Information, media and telecommunications (2.7 per cent), and Retail trade (1.0 per cent). Other industries that had significant growth were Rental, hiring and real estate (2.8 per cent) and Wholesale trade (1.6 per cent),” according to the ABS.
Investment in new and used dwellings rose 3.6% in the December quarter, particular in apartments, and by 12.1% over the past year, as buyers responded to record low interest rates in the wake of the two rate cuts in 2015.
While having no net impact on the December quarter growth figures, net exports contributed 1 percentage point to growth through the year to December, as exports growth outpaced growth in imports. This follows the strong contribution of net exports to economic growth in the September and March quarters.
Rural commodity exports rose by around 13% in 2015, while mining exports were up 5%.
Services exports have risen by around 8% over the past year, with tourism and education leading the way.
As expected, business investment fell 2.7% in the final quarter to be down 12% over the year.
Wages and salaries saw subpar growth in the final quarter and in 2015 – inflation was low and nominal GDP rose just 1.9% over the year (and just 0.4% in the December quarter).
Profits growth was also weak over the year thanks to expected downturn in resource company earnings, especially from iron ore, coal, oil and gas.
