Australian economic update january 2010
Economic growth has been stronger than expected and is set for a full recovery after the mild
economic downturn. The Australian economy continues to expand more strongly than other
advanced economies and the upswing in the economy is expected to become self sustaining.
The GDP, seasonally adjusted, grew by 0.9% in the December quarter 2009, which took the
2009 economic growth to 2.7%. Australia experienced four consecutive quarters of growth in
2009, heading off fears of a recession following the quarter of negative growth in December
2008. Australia escaped the recession which plagued other advanced economies in 2009.
Domestic demand (domestic final demand) grew strongly in the December quarter,
increasing by 2.0% – the strongest quarterly growth since March 2007. Private investment
grew by 3.5% after four consecutive quarters of contraction and was the largest contributor
(0.8 percentage points) to GDP growth. Public investment grew by 10.2% driven by stimulus
packages; the school building program and public housing program. Public investment
contributed 0.6 percentage points to GDP growth in the December quarter. Both private and
public consumption contributed 0.7 percentage points towards economic growth in the
Australian exports of goods and services have increased in the December quarter and also
in January 2010. Imports were large in the December quarter reducing GDP growth in the
quarter. The higher value of the Australian dollar also provides a conducive environment for
The prospects for export commodities in 2009-10 and 2010-11 have improved, reflecting a
stronger outlook for global demand, particularly in the Asian region, improving commodity
prices and an anticipated increase in Australian production capacity. The RBA commodity
price index has increased in both January and February 2010 driven by the resources sector
and improvement in contract prices for bulk commodities. The appreciation of the Australian
dollar, however, may erode some of the gains by reducing competitiveness and rendering
imports cheaper (increasing upward pressure on the current account deficit).
The latest Access Economics forecast (December quarter 2009) shows revised estimates of
economic growth in 2009-10 of 1.6% and 3.2% in 2010-11. While consumption (especially
household consumption) and exports are forecast to increase, business investment is
expected to remain sluggish in 2009-10. Business investment however, is expected to
recover over 2010-11, particularly in the mining sector and in dwelling construction.
The Westpac-Melbourne Institute Leading Index (which indicates the likely pace of
economic activity three to nine months into the future) data shows that the Index was 6.3%
in January 2010, well above its long term trend of 2.7%. The remarkable recovery and sharp
rise in the Leading index supports the views of the economic commentators including
Federal Treasury and the Reserve Bank of Australia (RBA), that economic conditions are
improving and growth is perhaps near trend.
There has been a huge surge in consumer sentiment in the last six months. Consumer
sentiment (the Westpac Melbourne Institute Index of Consumer Sentiment) rose slightly, up
0.2% in March 2010 from 117 in February to 117.3 in March (consumers are optimistic if the
index is >100 and pessimistic if the index is <100). The index rose to over 100 in June 2009 and has remained above, peaking in October 2009 at 121.4. The interest rates increases which began in November 2009 have slowed the increase of the index however consumer confidence still remains high. Some commentators are of the view that we are reaching a point where confidence may become more sensitive to increases in interest rates. Retail sales were up in January and in annual terms retail sales growth was close to 3.0%. ? Business confidence (Sensis®) among SMEs has remained buoyant although in the February quarter 2010 business confidence was 3 percentage points lower at 49%. This fall is the first since February 2009 with business confidence continuing to increase throughout 2009. Business confidence rose 37 percentage points year on year showing the recovering strength of the economy and business expectations. The Commonwealth Bank – ACCI Business Expectations Survey continues to show improvement in business conditions in the December quarter 2009 and business conditions are expected to improve strongly over the next three months.