A rebound in company profits suggests Australia’s economy will post a return to growth in the June quarter when national accounts are released on Wednesday.
Company profits posted their first rise in a year in the June quarter, boosting both the income and expenditure measures of gross domestic product.
The economy contracted in the March quarter, after floods in Queensland significantly disrupted production of coal and iron ore and distorted conditions over the first half of 2011.
Company gross operating profits rose 6.7 per cent in the June quarter from the previous March quarter, the Australian Bureau of Statistics (ABS) said on Monday.
Gross operating profits in current prices and seasonally-adjusted terms rose 0.2 per cent over the year.
JP Morgan economist Ben Jarman said the solid corporate profits and significant inventory build-up recorded in the June quarter were likely to push up GDP by 1.2 per cent, quarter on quarter.
“Today’s data boosts both the income and expenditure measures of GDP, and all but locks in a strong GDP result for the second quarter,” Mr Jarman said.
CommSec chief economist Craig James said the sharp rise in inventories, led by a 12.1 per cent lift in mining stocks, was good news for economic growth.
Estimated business inventories, in seasonally-adjusted chain volume terms, rose 2.5 per cent in the June quarter, following a 0.7 per cent rise in the March quarter.
Economists were expecting inventories to have risen by 0.4 per cent in the June quarter.
Macquarie Group senior economist Brian Redican said the data reflected divergence between sectors of the economy.
“In terms of sales for the different industries, you can see the two-speed economy emerging with retail sales and manufacturing quite weak and mining looking very strong,” Mr Redican said.
Mining profits rose 15.2 per cent, with sales up six per cent.
Mr Jarman said profits outside the mining industry were not as strong.
“In the detail, you’ve got a continuation of the mining versus non-mining split,” he said.
“We know miners got much higher prices for key commodities, given the supply disruptions that they faced earlier in the year.”
Manufacturing sector profits were over seven per cent, the third contraction in the past four quarters.
“The Australian business indicators for the second quarter provided yet more evidence of the divergent cross-sectoral trends that one expects in a small open economy facing a terms of trade shock,” Mr Jarman said.
Economists agreed the RBA was unlikely to raise the cash rate from its current 4.75 per cent, even if there was strong economic growth in the June quarter.
“It will support their view that mining output will rebound, but it will be some time before conditions in that sector return to normal,” Mr Jarman said.
“Of course, in the meantime, you’ve got other sectors of the economy suffering at that hands of the strong Aussie dollar.
“It’ll be an environment where the RBA will be happy to just wait and see.”
