With the ABS releasing its National Accounts figures yesterday a strange thing occurred, we avoided a recession. In a seemingly unprecedented move the Australian economy rose above negative territory and showed a small positive growth of 0.4%. The results of this news was almost instantaneous with the share market closing slightly higher overall. Whilst I’m cautious about this signalling the end of the bad economic times for Australia (and I’m glad Rudd doesn’t think that either) it does show that as a country we are well placed to ride out this crisis with the least amount of impact to our daily lives. There are a few key points to take away from the ABS’ figures however.
Firstly we need to take a look at what the contributions to the GDP figure where¹:
What we can see here is growth in Agriculture, Mining, Energy, Construction and Retail. What’s not doing so well is Manufacturing, Wholesales, Transport and Property and Business services. Whilst the strong growth in agriculture is a good sign the rest of the industries that showed growth only had small increases. Undoubtedly the retail figures are backed in part by Rudd’s stimulus package which also drove up imports. There was also some additional growth (about 0.5% from the previous quarter) in terms of exports, which could be put down to how cheap our dollar was until recently. The most worrying parts of these figures are the manufacturing and property and business services, as they represent a good chunk of where Australia’s future problems lie.
When the manufacturing numbers are down it usually means that there’s been a downturn in demand and this has been seen for the past few quarters. Whilst we can easily point the finger at the GFC for this one it signals that there is a decreased demand for production within Australia. Further to this we’ve seen an increase in the amount of imports over this last quarter showing that less is being sourced from within our country. Due to the dollar rising this could soon change however I believe the damage might have already been done, as many manufacturing plants have already begun to thin their workforces. Trying to take advantage of the strong local dollar will prove difficult for such companies as they will no longer have the capacity to increase production.
The property and business services is a little less worrying as there has been quite a lot of wealth knocked out of the top end of the market which will drag the entire sector down. Business are also cutting back on expansion plans and additional services so this is not particularly surprising either. However this figure still represents a downturn in this sector, but I believe that it is far better placed to recover than manufacturing is.
So overall I believe Australia’s resource backed economy is serving it well through this recession. We’re still feeling much of the pain from the GFC but at least there’s some signs that once confidence comes back to the markets Australia as a whole will be well placed to take advantage of it. The key issue for the Rudd government now is how to keep unemployment low through the next year or two so that we don’t lose our strong resource and manufacturing workforces, something which will cost a lot more to replace in the future.
¹Australian Bureau of Statistics, 2009, Australian National Accounts: National Income, Expenditure and Product, Mar 2009 cat no 5206.0 , viewed 04 June 2009, http://www.abs.gov.au/AUSSTATS/abs@.nsf/productsbyCatalogue/35F488B5F9F7D242CA256DF000814610?OpenDocument