Tuesday’s national accounts show Australia ending 2021-22 on a strong note.
Australia’s economy is now more than 5% bigger than it was before COVID, a better performance than most comparable economies.
The main drivers of the 0.9% jump in activity were household spending and exports.
Household spending grew 2.2% in the quarter, exports grew 5.5%.
Each contributed about one percentage point to the growth in GDP. Working the other way was a smaller build-up of inventories (unsold stock) that lowers the amount of production needed to meet the increased demand.
Households have been saving less in order to spend more. Since the start of this year, household saving has slipped from 13.5% to a more normal 8.7%.
In good news for government tax revenue, the value of Australia’s mineral exports also climbed due to higher commodity prices.
Price isn’t taken into account in compiling the most-widely quoted GDP measure, which is “real” GDP, a measure of volumes rather than prices.
Today’s good-looking news may not be a good guide to the future.
The three months to June were barely affected by the Reserve Bank’s five successive interest rate rises that began in May.
But it also said it was “not on a pre-set path”.
The Bank has to navigate between the Scylla of the inflation it would get from not lifting interest rates enough and the Charybdis of the recession it would get from lifting them too much. It is trying to find a Goldilocks path of “just right”.
As it happens, there’s a piece of news that should gladden its heart in the national accounts. Last year, it was giving the impression it wouldn’t lift rates until wage growth took off. This year in May it lost patience and lifted rates anyway, saying its business liaison program suggested companies were starting to pay more.
It might be beginning to get what it wanted.
- ^ 3.6% (www.abs.gov.au)
- ^ 3.4% (www.abs.gov.au)
- ^ quite a while (theconversation.com)
- ^ terms of trade (www.rba.gov.au)
- ^ flat (www.abs.gov.au)
- ^ highlighted (www.abc.net.au)
- ^ Jobs and Skills Summit (treasury.gov.au)
- ^ long and variable lags (www.jstor.org)
- ^ further over the months ahead (www.rba.gov.au)
- ^ Scylla (www.britannica.com)
- ^ Charybdis (mythology.net)
- ^ 2.6% (www.abs.gov.au)
Authors: John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra