June Quarter National Accounts: Another Swing and a Miss!

Today we will see a release of the National Accounts document from the Australian Bureau of Statistics which will give us a very clear idea of how Australia’s has faired since it narrowly avoided a recession just 3 months ago. As with any ramp up to figures like this, especially during tough economic times like this, there’s already a healthy amount of speculation abounding with the growth currently tipped to be somewhere around 0.2%:

Most economists’ forecasts were revised down after figures yesterday showed a worse-than-expected current account deficit.

Still, it would be the second consecutive quarter of growth after the December quarter’s contraction of 0.6 per cent.

Annual economic growth is expected to come in at just 0.2 per cent.

Joshua Williamson says household spending kept the economy afloat in the June quarter.

“Consumers have gone out and spent some of their stimulus payments and we’re expecting to see that through the household consumption data,” he said.

BT Financial Group’s chief economist, Chris Caton, says the economic picture will be mixed and goes beyond the gross domestic product figures.

“Although GDP growth has remained close to zero and/or positive except for one quarter, we’ve taken a 2 per cent hit to the unemployment rate, so we certainly have been affected, but not as much as elsewhere.”

I was going to wait for the figures to be released prior to posting this however I realised that regardless of the outcome my stance would be the same: Whilst Australia might be the only developed nation dodging the dreaded “r word” this is not something that signalling a bigger crash further down the road, as many doom and gloomers would have you believe. We as a country are very well set to ride out this global financial crisis as the problems that plagued the United States and many other countries simply aren’t present here (which I’ve blogged about previously).

There are 2 quips I commonly encounter from my friends over on the doom and gloom side of the fence. The first is that Australia only avoided a recession due to Rudd’s initial cash splash for over 8 million Australian tax payers. I give this some credit as for the most part it was spent as intended and the saving or paying off debt helped ease the burden on banks. However the idea falls down when you see that the unemployment rate around the same time showed signs of levelling off. The next round of unemployment figures (due out this time next week) will settle this issue succintly, and I’ll make sure to do a follow up then.

The second is that through their other stimulus initiatives (mostly the First Home Owners Grant boost) are keeping asset bubbles propped up which give the false impression that we’re doing fine and a crash is soon to come around the bend. Whilst I can appreciate the idea that housing is relatively expensive in Australia I always question the algorithms people use to come up with their metrics. The standard would be median house price to median wage (the median multiple) which I remarked about in the comments on a previous post. Such a metric is an extremely blunt too with which to judge housing affordability as there are many other factors that can influence what constitutes affordable housing. Take for instance the situation back in 1990 and compare it to today:

• Data:1990/Today
• Interest rate: 14%/3%
• Average wage: $30,576/$53,404
• Average house price: $100,000/$468,819
• Median multiple: 3.27/8.77
• Average mortgage repayment: $14,000/$14064

That last line is the kicker. With interest rates this low the average mortgage will be only $64 more than it was 20 years ago. This also doesn’t take into account that first home owners should not be buying a house in the median price bracket and should start out with something that’s less desirable but affordable (both of my current mortgages are below median properties, so I’m not just peddling nonsense here). Housing is affordable for those in a stable job and do their research. The main problem I see is a crisis of desire as most people want the large house close to town, which as a rule of thumb will always be out of reach of the first home owner.

BREAKING NEWS:

As I was writing this post the figures were released! Here’s the low down:

GDP (Chain volume measure)
	Trend	0.3	0.3
	Seasonally adjusted	0.6	0.6
Final consumption expenditure (Chain volume measure)
	Trend	0.5	1.6
	Seasonally adjusted	0.8	1.9
Gross fixed capital formation (Chain volume measure)
	Trend	-1.9	-3.2
	Seasonally adjusted	0.7	-2.3
GDP chain price index
	Original	-2.2	-0.5
Terms of trade
	Seasonally adjusted	-7.4	-11.6
Real net national disposable income
	Trend	-2.2	-3.2
	Seasonally adjusted	-2.0	-3.2

Staggering. The figures show that even before seasonal adjustment we still come out ahead. Australia has now had 2 quarters of small positive growth, so much for a recession ey?