GDP growth surprises at 0.5% - no coronavirus recession?

GDP in the December quarter grew by 0.5% and 2.2% over the year in seasonally adjusted terms, according to figures released by the Australian Bureau of Statistics (ABS) today.

Most economists had been predicting GDP growth of between 0.3% and 0.4% for the quarter, but the most pessimistic forecast came from AMP economist Shane Oliver, who had predicted negative growth. 

ABS Chief Economist Bruce Hockman said the 0.5% growth still slips below the average. 

"The economy has continued to grow and picked up through the year, however the rate of growth remains below the long run average," he said. 

Speaking at a press conference, Treasurer Josh Frydenberg said the GDP figures show the Australian economy has remained resilient, but was quick to point out they don't reflect the impacts of the bush fires or the coronavirus, which are expected to be felt in the March quarter figures. 

"Today’s national accounts confirm that the Australian economy continues to grow. Australia is in its 29th consecutive year of economic growth," Mr Frydenberg said.

"This puts to rest the claim by some that the Australian economy was softening at the end of last year. The Australian economy remains resilient and continues to defy all those who seek to talk it down.

"The bush fires have not had a significant effect on the national accounts in the December quarter. But we know that the fires have had a devastating impact on those communities.

"The impact of the coronavirus is serious and is ongoing, and is affecting economies the world over."

While the growth in the economy has come as a surprise, it's important to note that today's GDP data doesn't take into account the increasing spread of the coronavirus and the impact it has recently had on the economy and businesses.

The GDP figures for the March quarter should give a better idea of how the economy has fared in the wake of the virus. 

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Yesterday, the Reserve Bank cut the official cash rate by 25 basis points in anticipation of economic fallout from the recent bush fires and the coronavirus. 

RBA governor Philip Lowe also said the outbreak of the virus is likely to impact GDP growth in the March quarter.

"The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending," he said.

"As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected."

Today's GDP figures support the RBA's view that the Australian economy had reached a 'gentle turning point' late last year, which many economists had been skeptical about. 

But not everyone was happy about the GDP growth, including Chief Economist at the Australian Institute, Dr Richard Dennis.

"Today's figures confirm that GDP in Australia is still stuck in the slow lane. The last time the Australian economy grew above its long run trend was back in 2012 when Wayne Swan was still Treasurer," Mr Dennis said. 

"The ABS makes clear that two of the biggest contributors to Australia’s GDP growth last quarter were a decline in imports and an increase in business inventories.

"Both of these numbers provide more evidence of a slowing economy not a growing economy."

The ABS figures show that while domestic demand remained subdued with 0.1% growth in the December quarter, a pick up in household discretionary spending and continued increases in the provision of government services was softened by falls in dwelling and private business investment.

Dwelling investment fell by 3.4% over the December quarter, marking the sixth consecutive fall in line with the decline in construction industry value, which fell by 2.3%.

Household income remained steady over the quarter, with pay rising by 1%, reflecting a rise in employment and a steady increase in the wage rate. 

The household saving to income ratio fell to 3.6%, driven by the subdued consumption coupled with steady increases in wages and a boost in insurance claims.

The mining sector also added strength to the economy, with growth in production volumes of 1.6% in the December quarter and strengthening by 7.3% over the year.