The Australian economy grew by a better than expected 0.5% in the final three months of 2019, supported by household spending in November in the so-called Black Friday sales, government spending and higher business inventories (mostly iron ore and coal).
The data pre-dates the worst of the summer’s bushfires as well as January’s outbreak of the coronavirus so it has little relevance to the health of the economy in early March (which is the final month of the first quarter of 2020).
But household income, private investment and the terms of trade all weakened – and this was also before the already debilitating impact of the CVOID-19 virus on key sectors such as tourism and travel.
News of the growth figure (and the 2.2% annual rate, thanks to a revision in the September quarter of 0.2%) had no impact on a stockmarket worried about the impact of the COVID-19 virus, falling bank profits after the 0.25% cut by the Reserve Bank on Tuesday and the implications of the Fed’s larger 0.50% cut in its key interest rate on Wednesday.
And as we know conditions so far in 2020 are weaker – car sales in February fell 8.2% from a year ago for the 23 month of falling sales. That was after a 12.5% drop in January.
The December quarter’s National Accounts from the Australian Bureau of Statistics release showed that through 2019 the economy expanded by 2.2% after an upward revision to the September quarter result to growth of 0.6% from the first reported 0.4%.
That was partly due to the weak 0.2% quarter on quarter growth in the December quarter of 2018 dropping out of the comparison
Economists had been expecting a 0.4% increase in the quarter.
Nominal GDP fell 0.3%, as lower coal, iron ore and gas prices contributed to more subdued company profits. But it was still up 4.1% for the year (but down on the 5% plus of 2018).
ABS chief economist Bruce Hockman said in a statement with the National Accounts that domestic demand was subdued although there was a lift in discretionary spending, particularly clothes and footwear.
“The economy has continued to grow and picked up through the year, however, the rate of growth remains below the long-run average,” he said.
Dwelling investment continued to fall, sliding 3.4% in the quarter for its sixth consecutive drop. Private business investment slid as well (confirming last week’s fall in the value of construction work done and the December quarter’s private investment figures).
The impact of the surge in house prices since mid-year was evident in the increase in ownership transfer costs, rising 12.3% during the quarter to be up 6.5% through the year.
The mining industry was the only growth sector for the economy, even though profits fell in the quarter. Production volumes rose 1.6%, strengthening through the year to 7.3%. This was reflected in the growth in mining exports and inventories.
But falling prices for key export commodities impacted the terms of trade in the December quarter, which fell 5.3%. This reduced nominal GDP, which fell 0.3%, as lower coal, iron ore and gas prices contributed to more subdued company profits. Mining profits fell 2.6% for the quarter.
Household income remained steady with compensation of employees recording its twelfth consecutive rise, increasing 1.0% during the quarter.
This reflects a rise in the number of wage and salary earners as well as a steady increase in the wage rate. Non-life insurance claims contributed to household income reflecting increased claims attributed to natural disaster occurrences in the quarter.
The household saving ratio was 3.6%, down from more than 4% in the previous quarter, thanks to the subdued consumption coupled with steady increases in wages and a boost in insurance claims.
Mining profits declined 2.6 percent for the quarter.