The Australian economy managed what the Reserve Bank of Australia likes to call “about trend” growth in the December quarter, the national accounts showed on Wednesday.
But a soft private sector and slow inflation indicators confirm the RBA has room to cut interest rates if necessary.
Trend growth is what might be sustained over the long haul, given the underlying trends in population growth and labour productivity.
Together, those two factors put a cap on the economy’s potential for increased production of goods and services.
The broadest measure of the economy’s output of goods and services, gross domestic product (GDP), expanded by 0.6 per cent in the December quater.
That’s about three quarters of the long-run average.
Annual growth came in at 3.1 per cent, 0.1 or 0.2 below the norm and 0.4 below the RBA’s forecast of 3.5 per cent last month, but it was still close enough for the RBA to describe it as “about trend”.
The quarterly increase was retarded by weakness in government consumption spending, down in real terms (adjusted for inflation, that is) for the second quarter in a row.
Growth in household consumption spending was also very slow – it was up by a meagre 0.2 per cent for the second quarter running.
The figures also showed a fall in business investment spending, a hefty one per cent drop.
That was distorted by “the sale of a second hand asset to the public sector”, according to the Australian Bureau of Statistics.
But even allowing for the likely size of that deal, which the ABS keeps secret due to commercial confidentiality requirements, business investment was probably little changed in the quarter.
Factor in a small rise in housing construction – only 2.2 per cent – and private sector final demand looks to have risen by only about 0.3 per cent, even adjusting for the private-to-public asset sale.
That’s unambiguously weak.
And, because private final demand is what the RBA can influence with its interest rate settings, that means the central bank will have its finger on the rate-cut trigger as long as those private sector spending numbers continue to look soft.
And one thing that will make the RBA relaxed about pulling that trigger, if it feels the urge, is the news on inflation from the national accounts.
The key measure of consumer price inflation is what’s called the private final consumption deflator, which rose only 0.5 per cent in the December quarter and by 2.5 per cent per cent through 2012.
And, despite all the hoo-ha about labour productivity in recent times that is also well-behaved.
GDP per hour worked – the broadest measure of labour productivity – rose by 0.7 per cent in the quarter, about twice the long-run norm, and by 3.5 per cent over the year, about two and a half times the average.
That 3.5 per cent rise matched the gain over the year to March 2012 to be the equal fastest rise in productivity for a decade.
AAP gsj/g
