GDP indicates Australia was doing alright….in December 2010

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.

About Cameron Kusher

Cameron Kusher is RP Data’s senior research analyst, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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3 Responses to GDP indicates Australia was doing alright….in December 2010

  1. Shadow March 4, 2011 at 2:36 pm #

    Hi Cameron,

    You may be interested in some research we’re doing on the Zetaboards property forum into the leading and lagging indicators for house prices. You can see a list of the indicators that we have come up with so far here…

    Australian Housing Market – Leading and Lagging Indicators

    GDP (which you discuss here) is one of the indicators, and we have identified many others. We also note the strong correlation between house price growth and auction clearance rates (a leading or ‘real time’ indicator).

    Anyway, it is work in progress. Ultimately we hope to gather historical data for all these indicators, weight each one somehow, combine them, and then overlay them with a chart for actual house price growth. Then we should be able to see if there is a leading correlation between the indicators and house price growth, from which it may be possible to estimate future growth (maybe 3-6 months ahead) based on current indicators.

    Cheers,

    Shadow.

  2. Jeff March 4, 2011 at 11:21 pm #

    Hi Cameron,

    I note that “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.” Yet the February 2011 RBA forecast has June 2011 GDP at 3.25% up from actual 2.6% for December 2010. How does that work?

    Thumbs up to the blog by the way.

    Cheers,

    Jeff

    • Cameron Kusher March 5, 2011 at 8:33 am #

      Hi Jeff

      The Statement on Monetary Policy was released prior to the RBA having assessed the full impact of the natural disasters. They have since stated that they expect the output of the economy to slow due to the floods and cyclone.

      Cameron

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