Data Wrap - GDP beats expectations, but conditions in South Australia remain weak
In this edition of the Data Wrap we review today's Gross Domestic Product figures. We also recap the latest outcomes for South Australia in respect of building approvals, resources exploration activity, and price inflation faced by the local government sector.
Australian economy expands at a moderate pace, while final demand in South Australia remains weak
Australia’s economy expanded by half a percentage point in the December quarter, according to official figures released today. While the result exceeded market expectations, it continues a recent trend of subdued growth, and bushfires and coronavirus will only weigh on growth in the current quarter.
Australia’s Gross Domestic Product in real trend terms rose by 2.1 per cent through the year to the December quarter 2019, after increasing by an equivalent margin over the previous year. The latest GDP result compares with an average annual rate of growth of 2.6 per cent over the previous decade.
GDP growth for the December quarter was supported by expansions in consumption expenditure by both the public sector and households (up 1.0 and 0.3 per cent respectively), and an improvement in net exports, reflecting a small rise in exports (up 0.3 per cent), and a small fall in imports (down 0.3 per cent). On the other hand, business investment fell for the third consecutive quarter (down 0.8 per cent), while dwelling construction fell for the fifth consecutive quarter (down 2.4 per cent).
State-level estimates of GDP are not published on a quarterly basis, but estimates of state final demand, which are narrower in scope, are produced.
South Australia’s real state final demand (SFD) fell by 0.1 per cent in the December quarter of 2019 in trend terms, which compares with a 0.3 per cent rise in the corresponding national aggregate. South Australia’s latest quarterly SFD result was the weakest of any state or territory, although SFD was also stagnant in Tasmania (0.0 per cent) and the Northern Territory (0.0 per cent). Final demand growth was strongest in Western Australia (0.5 per cent) and New South Wales (0.4 per cent), followed by Victoria (0.3 per cent) and Queensland (0.3 per cent).
The poor final demand outcome for South Australia was largely due to weakness in the private sector. Business investment fell by 2.7 per cent, while household final consumption expenditure rose by only 0.1 per cent. On a brighter note, dwelling investment rose by 0.5 per cent, which represents the first rise following four consecutive quarterly falls.
Weakness in the private sector was mitigated somewhat by public sector spending. Public gross fixed capital formation rose by 1.4 per cent in the December quarter, while public final consumption expenditure rose by 0.5 per cent.
Upswing in building approvals comes to an end
A recovery in building approvals had been a positive sign for the South Australian economy in recent issues of the Data Wrap. However, data released by the ABS on Tuesday indicates that the recovery has now stalled.
The value of total building approved in South Australia fell by 7.5 per cent in January, in trend terms, and was down 19 per cent from its recent peak in September 2019.
The month-on-month decline for January was led by a sharp fall in non-residential building approved (down 14 per cent), while total residential building was also weaker (down 3.4 per cent).
In spite of recent falls, the value of total building approved in January 2020 for South Australia was still 3.8 per cent higher compared to a year ago. In comparison, the total value of building approved at the national level rose by only 0.7 per cent over the past year.
Mineral exploration activity grows, while petroleum activity moderates
Exploration activity in relation to minerals and petroleum resources provides insight into future construction and production activity for the resources sector. The latest estimates from the ABS, released last Friday, provide a mixed picture for South Australia’s resources sector.
The total value of mineral exploration expenditure for South Australia rose by 14 per cent to $87 million in 2019. While this represents a healthy increase, it lagged behind a national rise of 22 per cent.
Mineral exploration in South Australia remains at a relatively small scale compared to activity in other states and territories. The $87 million in exploration expenditure in 2019 was equivalent to only 3.3 per cent of total national expenditure. Western Australia accounted for the bulk of national mineral exploration expenditure last year (62 per cent). However, Queensland (13 per cent), New South Wales (11 per cent), the Northern Territory (5.0 per cent) and Victoria (4.2 per cent) all had relatively greater shares of national expenditure compared to South Australia.
In contrast to minerals, petroleum exploration expenditure declined in South Australia last year. Seasonally adjusted data indicates that total petroleum exploration expenditure amounted to $101 million in 2019, down 14 per cent from the previous year. In comparison, national petroleum exploration spending rose by 20 per cent.
Inflation faced by local government slows
The SA Centre for Economic Studies today released Local Government Price Index (LGPI) figures for the December quarter 2019. The LGPI measures price movements faced by local government in South Australia in respect of their purchases of goods and services.
Price inflation faced by the local government sector slowed noticeably in 2019. The LGPI rose 1.6 per cent through the year to the December quarter 2019, after increasing by 2.7 per cent over the previous year.
A majority of price indices (65 per cent) used to construct the LGPI showed weaker price trends over the past year. Most significantly, there was a sharp slowdown in price growth for construction, especially in relation to roads and bridges, while wages growth for the public sector also moderated. For example, the price index for road and bridge construction in South Australia rose by just 0.7 per cent through the year to the December quarter 2019, compared to 3.8 per cent through 2018.
Price inflation faced by the local government sector has historically been stronger compared to price inflation faced by households due to differences in the composition of purchases. However, this pattern has diverged recently with the slowdown in the LGPI. The 1.6 per cent rise in the LGPI over the past year compares with a 2.1 per cent rise in the Adelaide Consumer Price Index over the same period.