THE BIG PICTURE: RBA can take a bow for dodging the recession bullet

Ahead of the December quarter economic growth figures on Wednesday, it is worthwhile to reflect on the strong performance of the Australian economy in recent years.

While other advanced nations have experienced recessions over the past four years – a period dominated by the global financial crisis and European debt crisis – Australia avoided a similar fate.

A recession in Australia is commonly defined as two consecutive quarters – a six month period – where the economy contracts.

The Australian economy did contract by 0.7% in the December quarter of 2008 after a 0.7% lift in the September quarter. But in the March quarter of 2009 the economy rebounded, lifting by 1.0%. In the following June quarter the economy was flat but then firm growth readings resumed thereafter.

The last recession in Australia was 21 years ago, back in 1991, with the economy going backwards by 1.4% in the March quarter and then easing another 0.2% in the June quarter.

In December quarter 2000 the Australian economy eased by 0.6% but rose 1.4% in March quarter 2001. The temporary fall was due to timing effects associated with the introduction of the GST.

And there was another 0.4% fall in the economy in March quarter 2011 when output was temporarily derailed in various regions by floods and cyclones. But again the economy rebounded by 1.3% in the June quarter.

Largely we can thank the Reserve Bank for keeping the economy out of recession for so long, although other factors have also been influential over time.

The week ahead

The start of each new quarter is ushered in with a barrage of economic data and events. So brace for the ‘Autumn Avalanche’ where no fewer than a dozen economic events are scheduled over the coming week including a Reserve Bank Board meeting.

In the US, the focus is on Friday’s jobs report. And in China, the highlights are trade figures on Friday and inflation data on Saturday.

In Australia, the week kicks off with today’s Bureau of Statistics’ Business Indicators publication, including profits, sales and inventories data. And also today, figures showing council approvals to erect new buildings are issued. The data on new home building is volatile but we tip a 3% lift in approvals in January.

On Tuesday, the ABS issues figures on government finance and retail trade data, while industry estimates of new car sales are also scheduled together with the Performance of Services index. We tip a 0.4% lift in retail spending but it could actually be an even stronger increase based on the recent results from the Commonwealth Bank Business Sales Index.

The Reserve Bank Board also meets on Tuesday but we see no pressing need for a change in rates. The Aussie dollar may still be modestly overvalued but it has trended lower, not higher, over the past month. And there have been some encouraging economic results of late including higher consumer confidence and an increase in home auction clearance rates in Sydney and Melbourne.

On Wednesday, the ABS releases the December quarter estimates of economic growth (GDP) and we are tipping a solid 0.8% in output. Annual growth should print close to 3.2% – slightly above the “normal” rate or longer-term average growth rate.

On Thursday, international trade data is released alongside tourist arrivals. While neither is likely to cause movements on financial markets, we expect only a modest trade deficit near $500 million given the fact that the higher iron ore price is lifting export receipts and offsetting higher fuel and vehicle imports.

In the US, it is a relatively quiet start to the week with the ISM index for New York issued on Monday and the ISM services index on Tuesday. Economists tip a reading of 55.0 for the latter, still well above the 50.0 reading that divides expansion from contraction.

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