Yesterday’s Q1 GDP report showed some worrying signs for the domestic economy: in particular, it showed that the domestic economy has not grown at all in the prior three quarters.
Domestic demand (C + I + G, excluding inventories) is flat since Q2’12, and GNE (Domestic demand plus inventories) is -0.3% lower over three quarters.
In Q1’13, domestic demand contracted by 0.25%q/q (after +0.2% in Q4’12) and GNE fell by 0.7%q/q (following a 0.2%q/q decline in Q4’12).
Both situations are uncommon — and have typically only been seen in and around periods where the economy is contracting (yes, in a recession!).
Looking at the contributions of the various sectors, it’s clear why the headline GDP data is not more alarming: net exports have been making an unusually large contribution to growth. As a result, broad measures of activity that include the external sector are showing okay growth.
This net-export strength is likely to be sustained — but can we avoid a sharp increase in the unemployment rate? Only if the RBA is agressive (and they really ought to be — starting in July).
Finally (because I know you nominal-GDP junkies out there want to know) n-gdp picked up in Q1’13 (+1.3%q/q, after +0.5%q/q in Q4’12), though growth in n-gdp remains at recessionary levels.
More-over, the improvement was due to a pickup up in the terms of trade (which had been trashed over the prior five quarters). With the terms of trade up ~2.6% in Q1’13, they are now down ~16% over the prior six quarters.
They had been down a record-breaking 19% over the prior five quarters — and have since resumed their decline.
Those looking for more ought to check the (awesome) GDP charts at Mark the Graph — his State by State splits are a worthwhile addition to any analysis.