Five charts on Q4’12 Australian GDP

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.

This entry was posted in AUD, economics, monetary policy, RBA. Bookmark the permalink.

17 Responses to Five charts on Q4’12 Australian GDP

  1. Rajat says:

    “What’s not too soon to tell is that the nominal economy is basically in recession… it really does only get worse than this in a actual recession.”

    Funny you say that, because ECRI have doubled down on their recession call in this slide pack. After observing that US NGDP is down to 3.5% yoy, they say:

    “Based on the full 65 years of historical data, nominal GDP growth of less than 3.7%… has always occurred in a recessionary context – without exception.”

  2. james thommo says:

    great post Ricardo. i thought chris joyce’s arguments in AFR on the CLF and illiquidity vs insolvency, which is something youve discussed here before, were worth highlighting…seems the RBA does not understand the difference…

  3. nottrampis says:


    Can only agree.

  4. catrina smith says:

    yep i agree with Joyeboy on this one too. altho wld be v interested in old Ricardo’s views as i think he is one of the few that can go toe to toe with the big fella

  5. nottrampis says:

    you have made it again.

  6. ssec says:

    If residential house prices keep going like in this last quarter (I can’t believe how much shares prices and housing prices are related) no more cuts, sirs. Which will push the AUD higher, even if iron ore eases and lower the term of trade.

please comment

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.