by Brendan Rynne, Partner, Chief Economist.
The September quarter 2016 GDP results confirmed what was expected, which is an economy that’s in reverse in real terms. Unfortunately, the key cause of this decline has been a stark reduction in public sector capital spend, which fell by over 10 percent from the June quarter (in seasonally adjusted terms), while public sector recurrent expenditure also declined marginally by – 0.2 percent for the quarter. The cooling of the housing market has also had a negative effect on the national accounts, with housing spend falling –1.4 percent for the quarter. While commodity prices, particularly for iron ore and coal, have enabled the value of our exports to hit an all-time high, we imported an additional $1billion of goods and services in the quarter, ameliorating that positive export effect as a consequence.
These results show the fine balance the Australia economy remains in at the moment. We have a government implementing fiscal constraints by reducing spending, but our household and corporate sectors aren’t lifting their consumption and investment expenditure sufficiently to compensate for the fall in public sector expenditure. KPMG do not anticipate the economy to dip into recession by having a consecutive second-quarter of negative growth in December, but in saying that the economy is weak and balancing the role of government within it is a complex one at present.
Managing government spending to pull down the budget deficit, while at the same time not reducing expenditure too quickly such that it cruels the rest of the economy requires the skills of a tightrope walker.
Unfortunately, we’ve had a slip in the September quarter which has resulted in negative GDP growth.