GDP growth disappoints as households tighten purse strings

The GDP data for the 3rd quarter of 2017 has come in slightly below market expectations at +0.6% q/q (after Q2 was revised slightly higher to +0.9% from +0.8%) for a 2.8% y/y and 2.2% annual growth. The weaker data was due to a poor showing from household consumption (the largest component of GDP) which was up just 0.1% q/q; the slowest pace of growth since the GFC impacted numbers back in 2008. The largest contribution to growth came from Private CAPEX which added 0.8ppts and was up 4.6% y/y.

The data for Queensland State Final Demand (which does not include any export sector) saw SFD up 0.2% q/q (+2.7% y/y and +3.0% ann). Again, it was the household sector that was the drag here; household consumption was up just 0.3% q/q which was the poorest result since the GFC-impacted Q3 2008 data. Private CAPEX grew at 1.3% q/q which is the best result since Q1 2012.

We are still waiting for QLD Treasury to release their quarterly Gross State Product data (obviously help up by the recent QLD election) but once released this will provide valuable insight into how the whole (rather than just domestic) QLD economy is tracking.


GDP +0.8% q/q and +1.8% y/y. Queensland doing much better

The GDP data for the second quarter has shown a solid rebound from the weak data last quarter and is broadly in line with market expectations. On a seasonally adjusted basis GDP rose 0.8% for the quarter, or 1.8% from the same time a year ago. This brings the cumulative increase for the 2016-17 financial year to a 2.0% increase, which is the slowest pace of growth since the beginning of 2010.

The stronger growth this quarter can be posted to a solid increase in Public capital formation (which added 0.6 ppts) and net exports which added another 0.4 ppts. Inventories detracted 0.6 ppts.

While household consumption, the largest component of GDP, rose 0.7% q/q (and contributed 0.4 ppts to GDP growth) this was due to a further decline in the household savings rate, which has fallen to 4.6%, its lowest level since the pre-GFC levels of 2008. In the face of weak income growth households are simply running down savings to maintain consumption levels.

The less volatile Trend series shows growth at +0.7% (after some upward revisions to previous months) with annual growth at just +2.1%, the weakest result since Q2 2010.

In Queensland we see State Final Demand (which does not include the State’s strong export sector) up a solid 1.1% q/q (after Q1 was revised up from unchanged to +0.2%). Year on year growth is now running at +2.8% which is the best result in 5 years.

In Trend terms State Final Demand rose 0.7% q/q and as the second chart below shows is being kept positive by the impact of Public sector spending (most notably public CAPEX which is up 4.4% q/q). Private CAPEX data shows a 0.3% q/q increase and also saw previous quarters revised from slight falls to small rises.

Today’s data is a strongly positive sign for the State’s economy. Particularly when we combine this result with the signs of a solidly performing export sector which is likely to see Gross State Product data (when we finally get it) looking much healthier. For a government considering when to call an election this data should be a welcome addition.


Exports lead as QLD economy grows 3.9% y/y, 2.5% ann

Today saw the release by the Queensland Treasury of their estimates for Gross State Product for the first quarter of 2017. The ABS produce state Final Demand data on a quarterly basis (although this ignores net exports) but Gross State Product numbers only annually at the end of each financial year, so these quarterly estimates from Treasury are our only indication of how the total economy (incl net exports) is tracking. There is always some discussion about whether we can trust the Treasury quarterly data but we have always seen these as an excellent set of data; on the occasions when its data seems to diverge from ABS estimates we often see subsequent revisions bringing the two series back into line (see chart below for comparison).

On today’s data Gross State Expenditure (the “domestic” side of the economy) rose 0.3% q/q (after Q4 was revised down to +0.3% from +0.4%). This brings GSE on an annual basis to an increase of 1.3% (Q4 revised down slightly to +0.6%) which is the State’s best result since Q2 2013. The ABS have QLD’s State Final Demand at +1.0% ann (after +0.3% in Q4), which is the best result since Q1 2014. Private Sector Investment is still down 4.0% ann but this is the slowest pace of contraction since Q3 2014. As the chart below demonstrates, business investment has finally stabilised after the sharp fall following the mining investment boom. However, Household Expenditure (which is the single largest component) rose just 2.4% ann which is the slowest pace of growth since Q2 2015 and reflects weak wages growth.

When we add in net exports we arrive at a Gross State Product figure for Q1 which is up 1.2% q/q (after Q4 was revised up to +1.1% q/q), up 2.5% ann (up from +2.1% ann in Q4) and up 3.9% y/y. This compares very favorably with the national GDP data which shows a 1.6% y/y, or 1.1% ann, increase.

Although annual Gross State Product has grown by $7.9 bn since Q1 2016 the huge turnaround in Net Exports (which have gone from a $900 million deficit a year ago to a $4.9 bn surplus now) is the main reason for the growth.

However one spins these numbers they look like good news. The domestic side of the economy, while hardly roaring, is ticking along slightly faster than the nation as a whole and booming exports has the State growing at almost 2 1/2 times faster than the country as a whole. There will be some concern that the impacts of Cyclone Debbie and a higher A$ will drag the Q2 figures weaker but (barring further significant moves in the Aussie or a collapse in resource prices…neither of which we think likely) any such result is likely to be short-lived and have little impact on annual growth rates. The challenge for the State Government, as the Courier Mail points out today, will be to convert this solid growth into jobs and, ultimately, rising incomes.

Pete spoke to radio 4CA this morning about the data, and tourism into TNQ. You can listen below.

QLD Budget downgrades growth forecasts. Is Debbie to blame?

Today’s QLD Budget 2017-18 has downgraded growth forecasts across the forward years and is, to an extent and quite openly, laying the blame at the feet of TC Debbie for the slowdown. The Budget papers say “Queensland growth forecasts for 2016-17 and 2017-18 would have been higher, but for the impact of Severe Tropical Cyclone (STC) Debbie, which is estimated to have detracted around $2 billion or ¾ percentage point from economic growth across these years.” Certainly Debbie will have had impacts on coal, sugar and tourism exports across both 2016-17 and 2017-18 (TC Debbie struck the Whitsundays at the end of March and had severe flood impacts for days afterwards). But how much would this impact have been, and can it really account for the sharp reduction in growth forecasts for 2016-17 and 2017-18?

  • At the end of 2014-15 QLD’s Gross State Product stood at about $309bn
  • The 2016-17 MYFER forecasts growth for the 2015-16 year to come in at 3.2%
  • In reality the result was just 2.4%, which saw GSP at $316.3 bn by June 2016
  • MYFER had forecasts for 2016-17 of +4.0% and for 2017-18 of +3.5%
  • These would have taken GSP to $341.3 bn by June 2018
  • Today’s Budget has revised down growth forecasts to +2.75% in both 2016-17 and 2017-18
  • This growth, if it were attained, would see GSP at $333.9 bn by June 2018; a shortfall of $7.4 bn over the 2 years from the MYFER forecast

If we assumed that the $2 bn negative impact of TC Debbie were spread evenly across the 2 years (i.e. $1 bn in 2016-17 and $1 bn in 2017-18) then we could have expected to see forecasts for 2016-17 fall to +3.7% (down from 4%) and +3.2% (down from +3.5%) in 2017-18; significantly less than the actual reductions contained in this Budget.

So if it isn’t the impact of Debbie that’s seen growth forecasts cut back so far, what is it?

Comparing the projected growth rates of the various components of GSP from the Budget in 2016-17 to today’s we can see the answer lies not just in exports (Debbie impact).

  • Household Consumption (the largest single component) sees forecast growth scaled back in 2017-18 by 0.5%
  • Private sector Investment is now expected to contract by 1.75% in 2017-18 when last year’s Budget had penciled in a 3.5% increase
  • There is a reduction in Net Export growth forecasts in 2016-17 (down to +0.75% from +2%) but the forecast for 2017-18 remains the same at +0.75%, despite the supposed impact of Debbie in this financial year

The reduction in the forecast for Private Investment in 2017-18 would account for a bigger reduction in GSP than TC Debbie; some $3.3 bn. The decline in Household Consumption forecast would account for another $1bn in 2017-18 GSP.

Add these two elements to the $2 bn “Debbie effect” and we have most of the $7.4 bn shortfall between the MYFER and Budget 2017-18 forecasts.

This year sees a bigger than anticipated surplus for the Government ($2.8 bn rather than $2 bn) on the back of higher resources royalties. Unfortunately the slower than expected growth projections will see surpluses now forecast much smaller in the forward years. Previously forecast cumulative surpluses to 2019-20 of $4.6 bn have now been scaled back to just $3.8 bn despite the overshoot in 2016-17.

GDP slows (as expected) while QLD grinds to a halt

The ABS have released the GDP data for the first quarter of 2017. After a strong Q4 last year (unrevised at +1.1% q/q) Q1 is up just 0.3% q/q, +1.7% y/y and +2.3% annualised. This is result is in line with market expectations, although stronger than some had been expecting; there had been talk of a negative result. The initial result on the forex markets has therefore been to push the A$ somewhat stronger (up about 0.4 of a US cent).

The positive result is down to a strong contribution from Inventories (+0.4 ppts) while private and public investment and net exports all detracted from growth.

The less volatile Trend series shows growth at +0.4% (where it has sat for the past 3 quarters) with annual growth at just +2.2%, the weakest result since Q2 2010.

In Queensland we see State Final Demand unchanged in Q1 for a 1.6% increase over the same period a year ago and up just 1.1% for the year. This is however the first time that we’ve seen two consecutive quarters of positive annual growth in Queensland since Q3 2014. In Trend terms State Final Demand rose 0.4% q/q and as the second chart below shows is being kept positive by the impact of Public sector spending (most notably public CAPEX which is up 2.8% q/q) offsetting the decline in private CAPEX (down 0.9% q/q).

Treasury data shows QLD economy recovery picking up

The QLD Treasury data for State Accounts for the final quarter of 2016 shows the economy picking up nicely.

Whilst the ABS only produce Gross State Product data on an annual (financial year) basis, the Treasury produce their own quarterly estimates. These show GSP rose by 0.9% q/q after the third quarter numbers were also revised stronger (+0.9% from +0.5% original). This equates to an annual increase of 2.1% (after Q3 was revised up from +1.9% to +2.2%).

Even State Final Demand (which does not include the strong trade sector) showed improvement (+0.4% q/q) with the annual change moving into positive territory (+0.7%) for the first time since Sept 2014. Although we should note that the ABS estimate is just a 0.4% increase (also the first positive plot since Sept 2014).

Household expenditure rose 2.6% annually, although this is the weakest annual increase for this sector since June 2015. More encouragingly Private Business Investment rose 0.5% for the quarter, although a decline in Private Dwellings Investment saw total Private Sector Investment decline by 0.3%. Nevertheless, the annual change in Private Investment (-6.7%) is the best result since Sept 2014.

Queensland State Accounts show good growth; but it’s slowing

Friday saw the (rather delayed) release of the September quarter Queensland State Accounts from Treasury, and they appear to have slipped under the radar somewhat. While the ABS produce Gross State Product (GSP) data only on an annual basis for the June quarter, the QLD Treasury produce quarterly estimates. We have previously seen some disparity in these two measures, although new revisions to the Treasury data address much of that disparity from the 2015-16 data.

Firstly, if we consider the data for the 2015-16 year. When the original data for the June quarter was released by the Treasury they showed a GSP growth rate of 3.3% over the course of the year. The ABS data, released a few weeks later, had that growth pegged at just 2.0%. We wrote at the time (see here) about the reasons for the discrepancy and suggested that the figure was likely to be closer to 2.6% for the year. We are therefore not at all surprised to see revisions in the Treasury data which have taken the annual figure for 2015-16 down to growth of 2.4% (which is the same rate as national Trend GDP growth for that quarter) .

And so to the latest September quarter (and the first for the 2016-17 financial year). The annual GSP growth rate from the Treasury data has dipped to 1.9% (compared to a national GDP Trend growth rate of 2.6%). On a quarter on quarter basis the Q2 data was revised down to +0.4% (from +1.2%) and Q3 is up 0.5%. Unfortunately the Treasurer’s media release on Friday (see here) said that this 0.5% q/q growth was “substantially stronger than the rest of Australia with only 0.2 per cent“; apparently without realising that the national Q3 data has already been revised by the ABS to show a growth rate of 0.4%.

So what we can certainly see is that the recovery in Queensland is well in place. GSP has now increased for each of the past 8 quarters although, at an average of just over +0.5% q/q over that period, we are clearly a long way from the mining investment fueled boom-times.

Net exports have been, and will continue to be, a huge part of that recovery story. Five years ago net exports were deducting some $35 bn per year from our GSP; today the net export position is in balance over the year (actually a tiny $10 million deficit). Given that annual GSP for Queensland is in the order of $317 bn we can see that a $35 bn swing in net exports has played a huge role.

Household consumption (the largest single component of GSP) continues to move ahead nicely; up 2.8% for the year to Sept 2016. It’s also encouraging to see private investment improving. The annual slide in private CAPEX has slowed to be down just 10.1% (significantly better than the -16.7% ann seen in Dec 2015); the quarterly data has shown increases for the past 2 quarters (although business investment is up only for this quarter it is the first quarterly increase in 4 years) .

Recession avoided (again) as GDP jumps

As expected, the Australian economy once again avoided a technical recession (two consecutive quarters of negative GDP) with a better-than-expected increase GDP of 1.1% for the 4th quarter of 2016. This took year on year growth to 2.4% (up from an upwardly revised +1.9% in Q3) for an annual growth over 2016 of 2.5% (unchanged from Q3).

The main drivers of growth were household consumption (which was up 0.9% q/q and added 0.5 ppts) and exports which added another 0.5 ppts. Also encouraging was the fact that private fixed capital formation turned positive for the first time in the year and added 0.2 ppts.

In Queensland things also turned more positive. State Final Demand was up 0.9% q/q (+1.8% y/y) which was the state’s best result since the final quarter of 2013. On an annual basis over 2016 State Final Demand was up 0.4% which is the first positive plot for this measure since the third quarter of 2014. Here too households were the main contributors with Trend growth of 0.7% q/q while private fixed capital formation was also up 0.5% q/q.

Bearing in mind that the State Final Demand figures do not account for export data, we can expect to see an even better result once the Queensland Treasury release their Gross State Product figures for the quarter given the strength of resource exports in recent quarters. However, we are still waiting on those numbers for the September quarter (with no release date set down so far) so heaven only knows when we’ll see the Q4 numbers!

The chart below makes clear the recovery in private investment that we’re seeing in QLD and the fact that total Public sector demand (from both expenditure and investment) continues to ease. The recovery we’re seeing in QLD is down to households and private sector firms investing, not the public sector.

The latest CONUS Quarterly is now available for download below.

CONUS Quarterly March 2017

Queensland Economy – how do we start 2017?

A new year, and a time to reflect on where we stand in Queensland. And as far as the pollies are concerned (while Parliament is yet to return) the emphasis appears, as ever, to be on spinning the data to make whatever point they wish. In today’s Australian we see the LNP (in the person of Deb Frecklington) claiming “more than 30,000 Queensland jobs have been shed in the past year” while the ALP (via an unnamed spokesperson) countered that the Government had “increased employment since its election” and noted that “unemployment is 5.9% now, not 6.6% where the LNP left it.

So what’s the actual picture?


The current ALP Government were elected at the end of Jan 2015 so we have considered data (where available) since Feb 2015 as representing “since the election”. On this basis by Nov 2016 (latest available data) Trend employment is up by 22,800 and the Trend unemployment rate has fallen from 6.6% to 5.9% since the election (as the ALP spokesperson said). If we consider “in the past year” to mean the 12 months to Nov 2016 then Trend employment has indeed fallen by 30,900 (as noted by Deb Frecklington). As the chart below makes clear, the Government would much rather talk about “since the election” as this includes solid growth in their first year; while the LNP will focus on the weakness of the second year.

What we also see is that employment growth has failed to keep up with growth in the working population. The unemployment rate has fallen despite this weakness because the Participation Rate (the proportion of the working aged population who are either employed or counted as unemployed) has fallen from 65.2 ion Feb 2015 to just 63.9 in Nov 2016. To put some context around that number; this means that since Feb 2015 the working aged population in QLD has grown by about 92,000 while those in the labour force are only up by 8,000. Had the Participation Rate remained where it was at the time of the election we would have an additional 50,500 people in the labour force. Without additional jobs being created that would have resulted in an unemployment rate of 7.8% by Nov 2016.

It’s also worth noting that only about a third of the new jobs created since the election have been full-time, while almost half of the jobs lost in the past year have been full-time.

Overall the employment position in Queensland is complex. It’s certainly not “strong”. The Government’s first year was “positive” (largely on the back of Public sector jobs being replaced after LNP cuts in the previous administration) and the last year has been undoubtedly “weak” although recent months show some signs of improvement.


Recent data on Retail Trade shows Queensland doing well compared to the rest of the country, although this comes after a weaker first 18 months for the ALP Government.

Consumer confidence (as measured by the Westpac-Melbourne Institute Consumer Sentiment survey) has improved sharply over the past year after some dramatic declines in the months immediately after the 2015 poll and is up 4 points (from about neutral) since the 2015 election. This level of positivity within the consumer sector is evidenced when we consider the Household Consumption component within Gross State Product (see below).

Gross State Product

Treasury’s own quarterly data shows the State economy growing at a healthy 3.3% for the 2015-16 (although the official ABS data showed growth at a less impressive 2%…see here for a discussion about why these two numbers might be so different).

We have written extensively since the release of the most recent data on the impact of the private sector on Queensland growth, and in particular have noted the continued good contribution from Household Consumption and the return to positive territory for Private Investment (see here) so I don’t plan to repeat that here. Nevertheless it is evidently true that the real engine for growth in Queensland in recent quarters has been net exports as LNG exports come on line. State Final Demand (which ignores the international and inter-state components) is also improving and has finally turned positive again. The result for the third quarter 2015 was the strongest for Queensland since the start of 2013. (see here for full details)

Building Approvals

The over-riding theme in the residential construction sector since the election has been the surge (and then subsequent slowdown) in unit approvals.

The lag between approvals and actual construction can be lengthy, so the impact of the ramp up in approvals seen until earlier last year is still likely to be reflected in a stronger construction sector. Nevertheless, the dramatic slowdown in unit approvals (particularly evident in Brisbane and the SE) will have flow-on effects to the construction sector as we move through this year.

MYEFO downgrades growth, increases debt but sticks to 2020-21 as surplus year

Today’s Mid-Year Economic and Fiscal Outlook (MYEFO) downgrades Treasury’s forecasts of economic growth and increases the size of fiscal deficits; but it sticks to the projection in the Pre-Election Economic and Fiscal Outlook (PEFO) of the budget returning to surplus in 2021-21 (albeit a revised down, razor thin surplus). The full report is available for download here.

As we can see in the table below, while dwellings investment is expected to be stronger than originally forecast both household consumption and business investment are weaker and total private demand therefore also weaker. Total public demand is forecast somewhat stronger and this will have helped to mitigate against potentially even greater downgrades to GDP forecasts.

2016-17 2017-18
GDP +2.5 +2 +3 +2.75
Household Consumption +3 +2.75 +3 +3
Dwellings Investment +2 +4.5 +1 +0.5
Business Investment -5 -6 0 0
Total Private Demand +1.5 +1 +2.5 +2.5
Total Public Demand +2.25 +3 +2 +2.25
Net Exports +0.75 -0.75 +0.75 +0.5

Treasury present their fiscal forecasts graphically with the addition of 70% and 90% confidence intervals. The graph below, taken directly from MYEFO, highlights how precarious the road to the projected surplus in 2020-21 is likely to be. The 70% confidence interval (i.e. the range within which Treasury are 70% sure the final result will land) is $25 billion for the 2016-17 result which is just 6 months away. As we move further into the future the width of these confidence intervals naturally increases. Imagine therefore how wide this 70% interval would be for the projected tiny “surplus” in 2020-21. When considering outcomes this far into the future it is safe to say that a projection of a surplus is little more than some educated guess-work and a lot of hope.