GD-what?

The 0.8%q/q GDP print looked pretty good at the headline level, and the 2.75%y/y (v. RBA at 2.5%y/y) looked even better – but when you dig a little deeper that is where the good news ends.

gdpConts

Over the last two quarters, there has been a nice increase in consumption, however this has been offset by slowing investment – and with the outlook for further declines of investment and slower growth in Government spending, consumption will need to keep firm (or net exports will have to keep booming) to keep overall GDP growth around 3%yoy.

gdpXsplit

The RBA cannot do much about net exports (reflecting the fact that they have only limited influence over the currency), so they tend to steer policy based on measures on domestic activity. The simplest regression analysis reveals that GNE (DD + Inv) is much more important for policy – and on this measure we remain near recession.

twin_GNE_sa

Sure things looked a little better the last two quarters, however we remain a long way from normal.

I know a lot of readers are interested in nominal GDP – and here the news is a it better – due to a (probably temporary) rise in the terms of trade. It’s up on the quarter, and down only a small amount on the year (note that the YoY % decline was similar to the GFC).
twin_tot_sa

This has boosted nominal GDP a little – though the pace of growth remains weak by historical comparisons.

twin_nGDP_sa

Myself, i prefer read GDI ahead of n-gdp, as it’s less influenced by inflation.

twin_rGDI_sa

Again, this measure shows some improvement, but it’s a long way below normal.

Finally, thinking about policy – with the outlook for further declines in the terms of trade, it’s hard to see nominal GDP (or related measures) holding up. And with the bits of the economy the RBA most directly controls (domestic demand and GNE) still very weak, it’s premature to say anything more than that the data remains consistent with ultra-easy policy.

I still think the RBA’s next move is back to an easing bias.

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

4 Responses to GD-what?

  1. ssec says:

    A quote by JFK: “Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”

  2. Rajat says:

    Thanks Ricardo. I noticed that inventories contributed about 0.2% to GDP in Q4. Would that be flattering or understating the strength of domestic demand at this stage of the cycle?

    And I assume you mean ‘real’ GDI..

  3. Rajat says:

    Strong retail sales.. which is what we need to see..

  4. nottrampis says:

    I have publicised this twice on my blog.
    Agree on retail trade turnover. i would like to see non-miming investment start to do something as well.
    Probably have to wait until the currency gets to sensible levels.

please comment

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

WordPress.com Logo

You are commenting using your WordPress.com 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 )

Google+ photo

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

Connecting to %s