The Australian Bureau of Statistics released the December 2010 quarter Gross Domestic Product (GDP) figures this week. The data reaffirmed what we already knew, the Australian Economy was performing quite well during the final quarter of 2010.
Over the quarter, GDP grew by 0.7% which was in line with the market expectation. The quarterly growth figure took annual growth during 2010 to 2.6%. The GDP read for December was also in line with the Reserve Bank’s forecast of 2.75% as published in their most recent Statement on Monetary Policy.
The GDP figures revealed that disposable incomes have recorded strong growth over the year. Year on year, net disposable incomes have increased by 7.2%. Also important to note is that at the same time during 2009, net disposable incomes had actually fallen by -5.1% over the year, indicating that there has been a sharp rise in disposable incomes. This growth in disposable incomes is commensurate with the improving economic conditions and recent growth in wages which is well above the rate of inflation.
The GDP figures also revealed that Australian consumers are continuing their relative conservatism, saving more of their net income. During the December 2010 quarter the net savings ratio was recorded at 9.7%, an increase from the 8.0% net savings ratio the previous December however, down slightly from 9.8% during the September quarter. Although the savings ratio was at slightly higher level during late 2008 and early 2009, current ratios are amongst the highest since 1989.
Despite the generally positive GDP results for the December 2010 quarter, it is anticipated that next quarter’s GDP will be adversely affected by the recent floods and cyclones across the country. During January mining and agricultural output has been affected and as a result GDP will likely also affected by the slowdown in output.
Currently, growth in GDP is slightly under trend – so while the figure is quite healthy Australia’s economic growth is actually below the long-term average. Also important to note is that Australia is now well into its 20th year of growth.
Despite the anticipated slowdown during the next quarter, the recent forecast from the RBA suggests that GDP growth will continue to increase over the coming years.
For the property market, this week’s GDP results coupled with this week’s RP Data- Rismark Home Value Index results indicating flat to slightly falling property values coupled with an Australian economy that continues to grow. This will likely result in an improvement in home loan affordability, particularly when you consider that disposable incomes are growing solidly and at a level well above inflation. Despite the GDP figures we continue to expect that affordability constraints and the likelihood of higher interest rates will hamper any significant growth in property values this year. Should values remain flat and GDP figures continue to show increases to disposable incomes we would expect that housing affordability will continue to improve throughout the year.