Following close on the heels of scintillating innings from Steve Smith and David Warner against the Black Caps earlier this month, GDP numbers confirmed yet another remarkable century for our Trans-Tasman cousins. The Australian economy has now moved past 100 quarters in a row without a technical recession (defined as two quarters of negative GDP growth in a row).

Amongst developed nations in recent times this run of over 25 years is second only to the 103 consecutive quarters notched up by the Netherlands from 1982 to 2008. That’s impressive, but it is even more remarkable that it spans a period including the GFC and an ongoing unwind of the massive China-led commodities boom.

Charts 1 & 2 outline just how the Aussies have done it. When the GFC hit and private investment began to fall, the Australian government stepped in with A$50bn+ of stimulus measures. Just as the economic impact of this was peaking China launched its significantly larger stimulus programme, driving commodity prices and mining investment through the roof. Then, by the time commodity prices began to fall, a world awash with QE cash and cheap debt fuelled both consumer spending and property prices, simultaneously setting off a home building boom.

100-quarters-of-economic-growth

But the consumer is now showing signs of fatigue (Chart 2) and the housing cycle looks to have passed its peak. Private sector investment (including mining) should begin to level out over the next year or so, removing a drag on growth. However, a hole will still need to be filled and in economic circles the search is well and truly on for Australia’s next big tailwind.

Most eyes are once again fixed firmly on the public sector. Even before Trump’s win in the US election there has been talk of a significant increase in expenditure on Australian roading, railways and other engineering projects. A steadily rising list of projects tendered to the market suggests momentum is beginning to build, at least in NSW and Victoria.

Yet this time the transition to the next economic driver may not be so seamless. Initial estimates of the July-September quarter show a -0.5% fall in GDP, the budget is in deficit, underemployment is rising, years of good news have bred inefficiencies in many markets and the federal government’s capacity to make decisions is hamstrung by infighting.

Through good management and good luck, Australia has had an amazing run. But all good innings come to an end sometime.

David Rigby

Senior Analyst

 

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.