Today saw the release of the GDP data for the third quarter. After some weak data from net exports the markets had been expecting a figure around a 0.1/0.2% decline. The result came in worse than expected at -0.5% q/q for an annual increase over the year of +2.5% or a year on year increase of just 1.8%.
Whilst the result came in weaker than expected we should note that the second quarter (which had been rather higher then expected) was actually revised slightly higher (+0.6% q/q after an initial plot of +0.5% q/q).
Aside from net exports, which deducted 0.3ppts from growth, the other big negative was Public Capital Formation which deducted another 0.5ppts (last quarter this sector added 0.7ppts to the stronger growth so this quarter is something of a payback from last quarter). Household Consumption (the main component of GDP) was up just 0.4% q/q and contributed just 0.3 ppts to growth (a small improvement on the 0.2ppts result from last quarter) .
This is the first quarter of negative GDP since the first quarter of 2011. The country has still not seen a recession (2 quarters of negative growth) in over 25 years and there is no sign that we will see another negative next quarter given data (such as retail sales and terms of trade) already seen for Oct.
The weaker GDP plot certainly reopens the possibility of a further cut from the RBA in coming months although our feeling remains that is not needed.
As we know, the story in Queensland has been somewhat different. On a quarterly basis the ABS only produce State Final Demand data for the states (which does not account for net exports) and as such tends to understate the picture for an exporting state like Queensland. Queensland Treasury do produce quarterly Gross State Product data (which includes net exports) but the data for the Sept quarter will no be available from them until later this month.
The ABS provide Gross State Product data for the states on an annual basis for the financial year and this showed Queensland growing at just 2.0% (see our FNQ Economic Roundup later for more details). State Final Demand rose 0.1% q/q after the strong +0.7% q/q from the previous quarter. As a result Queensland State Final Demand was up 1.2% y/y (up from 0.6% y/y last quarter) which is the best result for the state since the final quarter 2013. This is now two consecutive quarters of positive y/y growth breaking a string of seven negative quarters; and it’s the fourth consecutive quarter of positive q/q growth.
When we consider the components of State Final Demand we see that both the Private and Public sectors have grown. Household consumption is up 2.4% for the year while private capital formation has fallen by 3.0% (dwellings investment +10.1%, non-dwelling –15%) for a net increase of just 0.9% y/y.
Government expenditure increased by 3.4% while public capital formation fell 2.5% for a net increase for the public sector of 2.2%.
What we are seeing is the Queensland economy growing, but that growth is largely on the back of relatively strong Government Expenditure. Investment in the private sector continues to be a drag despite strong dwelling construction investment.
There can be little debate that the Queensland economy is starting to recover. Once we see the Treasury quarterly data for Gross State Product (which will include the strong exports data) we are expecting to see further evidence of the recovery.