First of all, I need to acknowledge my bad forecast for headline real GDP — I had guessed at +0.25%q/q and the number ended up printing at +0.5%q/q.
Notwithstanding the strength in real growth, i still judge that the overall economy is weaker than the headline Real GDP number suggests.
Much monthly data seems to more closely track real GDI — this is a terms of trade adjusted measure of real incomes. This measure is weak, due to the falling terms of trade. The consequence of which is the real profits and real wages are falling (as they purchase less). In consequence, folks ought to spend less, and invest less.
I think that over the past decade this has been the better measure of what’s going on in Australia — it is more closely related to employment and inflation outcomes, and more closely related to real profits for the listed sector.
Real GDI was -0.4%q/q, and -0.1%y/y … that’s why firms are bleating like we are on the edge of recession. Above, i have shown the 2q MA AR, which i think best balances the need to smooth this data with the need for a timely measure of momentum. The 2q MA AR of Real GDP is +2.1%y/y, and the same measure for Real GDI is +0.05%y/y
A favourite measure of some, and a related measure, is nominal GDP. That grew at 0.16%q/q, taking the YoY pace down to 1.9%. The 2q MA AR pace is 2.3%. It only gets weaker in a recession. Looks like that surplus is going to be a LARGE deficit.
The other worrying factor (and reason i got my forecast wrong) is that the growth is ALL mining. We don’t have much monthly data on mining. According to the GVA Accounts, mining was +0.44% of the +0.47%q/q growth (it’s a bit of bogus point, but the statistical error was +0.1ppt, so if i hadn’t counted that, mining would have been everything).
So, while headline growth look okay(ish), nGDP (the thing the government taxes) looks weak, and inflation adjusted purchasing power is falling.
You cannot trust a single quarter of data, but it’s at least a little worrying that, outside of the mining sector, the economy appears to have stopped.
Looks like we need more cuts, and that we’re going to get a deficit. I’m taking a wild swing at -25bn.