After the latest GDP print, those calling for a long anticipated recession in Australia will have to wait a little longer. The September quarter GDP number came in at 0.9% versus expectations of 0.8%. On an annualized basis, GDP is growing at 2.5%, ahead of expectations, and consistent with many economists’ view of the new long term growth trend of the Australian economy. Combined with recent strong employment numbers, bouncing consumer confidence, improving manufacturing, and stronger for longer housing approvals, it does paint the picture of an economy that is doing well to digest the after taste of a significant mining boom.

 

There are 2 points I would make.

 

First, there is no doubt that low cash rates and the falling Australian dollar have been a significant boon to local manufacturing, construction and services industries – to a point where the drag from the mining slow down has been far less than predicted. Housing construction, domestic and inbound tourism and international education have been big beneficiaries in this environment. The recent strength in employment has been driven by these sectors. Manufacturing is expanding at its fastest rate in two years. A lower for longer currency will continue to reap benefits, and this will be the primary focus of the RBA.

 

Second, mining is still very important to the economy. While prices and investment in this space are falling, export volumes of iron ore and coal have continued to grow. In fact, it was better than expected commodity exports that drove the beat in last quarter’s GDP. For the quarter, mining exports grew 5.2%, rebounding from a decline in the June quarter. Given some of this was weather related, it will be interesting to see how mining exports hold up over subsequent periods.

 

So, just how well is the Australian economy performing? The RBA believes that the economy is performing respectably but to quote many a long line of past high school teachers, “Doing well, but could be doing better!”

 

Marc Whittaker

Portfolio Manager

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.