Q4’12 GDP came in bang on the median expectation of +0.6%q/q 93.1%y/y), however it was a little lower than the RBA’s Q1’13 SOMP forecast of +3.5%y/y, and a little lower than the pre-release whisper numbers of 0.8%q/q (folks saw upside risk following public demand).
The quarterly story in the data was all about a hand-over from domestic demand to foreign demand. This is likely to be the story for some time. In quarterly terms, demand came mostly from net exports (+60bps) and public demand (+110bps), with Household consumption adding a modest 10bps; private capex subtracted 90bps, and a slower inventory build subtracted 40bps.
A part of this is bogus — the large public capex and weak private capex number partly reflect a transfer from the private to public sector.
Overall, I think it’s more helpful to think in terms of the aggregates — quarterly accounts are always noisy. Let’s frame it in terms of:
Income (Y) = (C)onsumption + (I)nvestment + (G)ovt + e(X)ports – i(M)ports
Taking the first three terms (C+I+G) we saw domestic demand growth of 0.3%q/q (~1.25% AR), which is a slight improvement on the donut in Q3’12. Adding inventories (which makes GNE) we saw a modest contraction of -0.1%q/q (~ -0.5% AR). Adding in net exports (which gets us back to GDP), we get the +0.6%q/q headline number (~2.4% AR).
I prefer 2Q annualised rates to smooth the volatility. On this basis, the transition that’s underway is clear — after driving growth at the start of the mining boom, domestic demand is now weak. This reflects a move from the investment stage of the mining boom to the net export phase of the mining boom.
Does it matter?
Depends how linked into the economy you think the export and import sectors are. In Australia, we export mostly farm and mining goods. Neither employs many people in the operation phase, but mining does in the expansion phase.
Has that expansion phase ended? It’s too soon to tell.
What’s not too soon to tell is that the nominal economy is basically in recession. It grew by 0.5%q/q in Q4’12, up from -0.1%q/q in Q3’12. That takes the 2q AR and YoY pace to ~0.75%.
As you can see from the above chart, it really does only get worse than this in a actual recession.
The weakness of the nominal economy is why i think that inflation will remain low, and why i think it’s way too early to talk about rate hikes.