Economy: Red Ink Ahead?

  The Australian economy grew by just 0.1% in the September quarter, kept in the black mostly by the recovery in rural Australia from the terrible drought of the past couple of years (which remains in much of the country though).But in reality it went backwards with non-farm GDP shrinking 0.3%, according to figures from the Australian Bureau of Statistics for the September quarter's National Accounts.But there is no joy whatsoever from these figures except that there are better times in some parts of regional Australia with higher grain harvests forecast.So will the belief of some economists that the economy's woes have deepened since September 30, be vindicated early next March when the December quarter GDP figures are released?Or will the & #36;10.4 billion 0.8% of GDP stimulus package and the 3% cut in the cash rate by the Reserve Bank, kick in to give us another small, positive growth quarter?Either way, the economy is close to stalling speed and the downward pressure from the global recession from April onwards will be enormous as iron ore and coal prices fall by over 30% and more and depress our terms of trade and national income: deflation and falling growth could be the big news story from April through to December next year.Monday's performance of manufacturing index for November told us this quarter was tough with a fall to a record low. This morning it was the same index for our bigger services sector.The news was again bad, another record low.The Australian Industry Group-Commonwealth Bank of Australia performance of service index fell 4.3 points to 37.8 points in November, the weakest reading since the monthly series began in 2003.The drop from 42.1 points in October in the economy's most important sector illustrates the extent of the slowdown here and offshore.The index has been below the 50 point level that separates growth from contraction since April, but lurched downwards in November, as the manufacturing index did.The index readings for services sales, new orders and employment all fell to record lows in November, with all sectors and states reporting a decline in activity.Both surveys have made the GDP figures a bit historical, but they nevertheless send a message of an economy slowing. Nothing since September 30 has altered that assessment.As well as the bounce in the bush, it was the lingering echoes of the construction surge associated with the resources boom, and solid spending on infrastructure was also a plus in the quarter.But lower contributions from the financial sector (the credit crunch and sharemarket collapse), property (the housing slide) and transport and storage almost tipped the economy into the red in the quarter.Imports detracted from growth, as did the impact of the financial crunch in the sharemarket (called quaintly & quot;Private Investment Ownership Transfer Costs & quot; which were a negative 0.2%.As predicted, imports detracted by 0.4% as the volume of exports slowed (the resources boom being pricked in the quarter), while high prices for coal and iron ore maintained the illusion that the export sector was doing well. (It was, but not as well as the figures implied at first glance.)The ABS said: & quot;In seasonally adjusted terms, GDP increased by 0.1% in the September quarter. Non-farm GDP decreased by 0.3%. & #160;The Terms of trade rose 5.6% and Real gross domestic income rose 1.4%. & quot;The farm sector rose 14.9%, albeit from a low base in the quarter to be up 11.3% through the year. The fall in non-farm GDP of 0.3% left it still positive for the year, up 1.7% through the year. & quot;The September quarter outcome was also affected by the impact of the gas plant explosion on Varanus Island in Western Australia, which is evident in the weakness of exports in the September quarter. & quot;The impact of this explosion is estimated to have subtracted around 0.25% of a percentage point from GDP growth in the September quarter. & quot;In seasonally adjusted terms, the main contributors to the increase in expenditure on GDP were Engineering construction investment (0.4 percentage points), Public gross fixed capital formation (0.2 percentage points) and Inventories (0.2 percentage points).The largest negative contributions came from Imports (-0.4 percentage points), Ownership transfer costs (-0.2 percentage points) and New building (-0.1 percentage points).In seasonally adjusted terms, Agriculture, forestry and fishing contributed 0.3 percentage points to GDP growth, while Construction contributed 0.1 percentage points. Transport and storage, Property and business services, and Finance and Insurance services all detracted 0.1 percentage points. & quot;The 0.1% rise, seasonally adjusted was down, & #160;from a revised 0.4% gain in the June quarter (0.1% originally).The result was the weakest since December 2000. Analysts expected an 0.2% increase for the quarter. Annual growth for the July-September period came in at 1.9%, weaker than the previously reported 2.7% rise for the June quarter.The yearly outcome matched analysts' forecasts.The Reserve Bank Tuesday sliced 1% from the cash rate to 4.25%; these figures ensure another rate cut will come next February with the market already pricing in an 0.75% chop.November's unemployment figures will tell us if the lag in unemployment has finally started to quicken up to match the slumping economy, as it has in the US.America's November jobless numbers are tipped to jump by over 300,000 when the figures are released on Friday night, our time. We are still a long way from that problem, as yet.Looking at some of the detail in the accounts, household final consumption tells the story: Australian consumers stopped spending in a big way in the quarter.The National Accounts show that households pulled back on their spending as the extent of the global financial crisis has become apparent.While incomes remained strong in the September quarter, assisted by the tax cuts which began on 1 July, consumption grew by only 0.1% in the September quarter.Households continue to direct their incomes to rebuilding their balance sheets, with the household saving ratio rising to 3.9% in the quarter.The ABS said: & quot;Household final consumption expenditure increased 0.1% in seasonally adjusted terms. The main positive contributor to growth in seasonally adjusted terms was Rent and other dwelling services (up 0.6%) and Insurance and other financial services (up 1.0%). & quot;The main negative contributors to growth in seasonally adjusted terms were Purchase of vehicles (down 7.9%) and Hotels, cafes and restaurants (down 0.7%). & quot;New business investment continues to support growth, although growth rates have slowed from recent rapid increases.New business investment rose by 1.8% in the September quarter to be 12.5% higher through the year.The rise was driven by new engineering construction, which increased by 11.8% in the quarter as work continued on major resource projects.Federal Treasurer Wayne Swan was optimistic about the figures. & quot;Today's National Accounts are a positive outcome for Australia, in the context of a rapidly deteriorating global environment. & quot;The slowing of our economy in the September quarter showed that we cannot completely resist the pull of international economic forces, but we are better placed than other nations to face this global financial crisis. & quot;He said engineering construction is expected to be solid over the next few quarters as work on large projects in the pipeline continues. & quot;Nevertheless, the outlook for business investment will be sensitive to developments in the world economy and ongoing disruption to financial markets. & quot;Net exports detracted sharply from growth in the quarter. Import growth remained strong in the quarter, as strong business investment continued to drive imports of capital goods. & quot;In contrast, export growth was flat, buffeted by slowing demand from the weakening world economy and the impact of the Varanus Island gas explosion on many exports originating from Western Australia. & quot;Nevertheless, continued increases in the prices of iron ore and coal meant that the terms of trade rose by a further 5.6 per cent in the September quarter, and a quarterly trade surplus was recorded for the first time since the March quarter 2002. & quot;Well, yes that was correct, but contract prices last until March 30 next year and there could be some early settlements revealed later this month as some suppliers to Japan, China and South Korea try to sign up early to get an advantage.But prices will drop sharply from April 1 next year, as will volumes. Our terms of trade, trade surplus and national income will all come under considerable pressure.That's when the chances of a recession will be at their highest, if we aren't in the red by then anyway. & #160;  

Add Your Business

List your business

for more exposure
and more traffic!


Sydney

  [ Change ]
 
Today

Max: 19°
Shower or two.
Tomorrow

Min: 13°
Max: 20°
Possible shower.
 

Account

Login

To access your account and listings



Remember me
   
   
   
 
 
Find Hunter Valley accommodation online