The Australian Bureau of Statistics on 3 June 2020 released the March quarter 2020 results for the Australian National Accounts.
The results showed that the Australian economy contracted by 0.3% (seasonally adjusted) in the March quarter 2020 and grew 1.4% annually. This result is down 0.8% from the previous quarter that showed quarterly GDP growth of 0.5%. Overall, the March quarter 2020 result showed that the Australia economy contracted and is growing well below the long-run average of around 3.0% annual growth.
What are the changes to the components of GDP?
Household final consumption expenditure fell by 1.1% (seasonally adjusted) in the March quarter and fell by 0.2% (seasonally adjusted) annually. Interestingly, the decrease in household spending was driven by a 2.4% fall in consumption of services in the March quarter. General Government consumption expenditure increased by 1.8% (seasonally adjusted) in the March quarter and increased 6.2% (seasonally adjusted) annually. Overall, total final consumption expenditure fell by 0.4% (seasonally adjusted) in the quarter and increased 1.4% (seasonally adjusted) annually. Private demand detracted 0.8 percentage points from GDP, which was primary driven by the 1.1% fall in household final consumption. These figures show that growth in consumption expenditure, which represents around 60% of GPD, remains very weak.
Total gross fixed capital formation (or investment expenditure) fell 0.8% (seasonally adjusted) in the March quarter and fell 2.4% annually. This result was mainly driven by a fall of 1.6% (seasonally adjusted) in machinery and equipment and a fall of 1.7% (seasonally adjusted) in dwellings for the March quarter. Public investment also fell by 0.7% (seasonally adjusted) in the March quarter but increased 2.1% (seasonally adjusted) annually.
Net trade contributed 0.5 percentage points to GDP. Exports of goods and services fell 3.5% driven by a 19.9% fall in travel services, 10% fall in non-monetary gold, 1.8% fall in mineral ores and 6.0% fall in machinery. However, this fall was more than offset by a larger 6.2% fall in imports of goods and services. This fall was driven by a 22.8% fall in travel services and a 10.3% fall in capital goods.
What are the overall thoughts of this result?
This result showed that the domestic Australian economy is weak. The external sector (Net trade) and public expenditure were the only 2 positive contributions to GDP growth in the March quarter. Household consumption and investment expenditure remain negative. It is important to note that until household final consumption expenditure picks up, it is likely the Australian economy will remain in negative or subdued GDP growth for some time. The hope is that now the Australian economy is re-opening, household consumption, and especially in services expenditure, may pick up.
Another key point about this result is that the household savings ratio rose to 5.5%. This rise represents a rise in gross disposable income and fall in consumption. This rise in gross disposable income was driven by the Government’s job seeker and job keeper programs. The unfortunate reality though is that this increase in household income did not translate into an increase in consumption, but instead it was saved which is a withdrawal not an injection into the economy.
The Australian economy is in a recession as the June quarter results will show a further contraction in the economy. The more interesting question is how long this weak economic environment will continue and will there be a V or U shape economic recovery. The recent rally in the share market suggests that investors think there will be a V shaped recovery. That said, only time will tell, and investors should continue to follow the economic data for the June, September and December quarters to have that question answered.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.