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Economy shrinks for first time since 2011

Economy shrinks for first time since 2011
Poor balance of trade figures dragged the figure down. Photo: AAP.
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Australia’s economy shrank 0.5 per cent in the September quarter, well below already pessimistic analyst forecasts.

The annual rate of growth came in at an anaemic 1.8 per cent, also below expectations.

Economists were generally expecting a slight fall in gross domestic product (GDP), with the typical forecast for a -0.1 per cent quarter and economic growth of 2.2 per cent over the year.

A range of partial figures led analysts to their downbeat predictions, with yesterday’s trade data pointing to a 0.2 percentage point subtraction from economic growth, while construction data released last week were much worse than expected, and business investment was also weak.

However, the final result was even weaker than expected, pushing the Australian dollar down the best part of half a cent to 74.2 US cents by 11.38am (AEDT).

The last time Australia had a negative quarter was March 2011, when floods in Queensland knocked out a large part of the nation’s coal production.

Prior to that, Australia had negative quarters in December 2008 (where the economy shrank 0.7 per cent during the global financial crisis), and December 2000 (a 0.3 per cent fall following a flat September quarter on the introduction of the GST).

However, one negative quarter does not meet the widely accepted definition of a recession, which requires two falls in a row, and last occurred in Australia in the first half of 1991.

The final National Accounts data showed that slumping private investment in new dwellings contributed 0.3 percentage points to the GDP decline, with new engineering detracting 0.2 percentage points.

Public capital expenditure, such as infrastructure investment, knocked 0.5 percentage points off growth in the September quarter after a strong June quarter.

The ABS noted that higher-than-usual rainfall contributed to much of the decline in building activity.

The last time Australia had a negative quarter was March 2011, when floods in Queensland knocked out a large part of the nation’s coal production.

Prior to that, Australia had negative quarters in December 2008 (where the economy shrank 0.7 per cent during the global financial crisis), and December 2000 (a 0.3 per cent fall following a flat September quarter on the introduction of the GST).

However, one negative quarter does not meet the widely accepted definition of a recession, which requires two falls in a row, and last occurred in Australia in the first half of 1991.

Another positive is that GDP has rebounded by 1.1 per cent in the quarter immediately after each of the previous three negative quarters since the early-’90s recession.

Also in better news, the recent trend of “nominal GDP” and income growth lagging so-called “real GDP” because of falling commodity prices amid rising export volumes reversed last quarter, pushing these more accurate measures of household and budget income higher.

Real net national disposable income, which the ABS describes as the National Accounts’ best measure of household wellbeing, rose 0.8 per cent in the September quarter largely due to a 4.5 per cent jump in the price of Australia’s exports relative to the cost of imports.

More to come.

– ABC

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