GDP figures show early signs economy is recovering

The Australian Bureau of Statistics (ABS) released the latest National Account figures on Wednesday. It shows early signs that the economy is recovering.

The economy grew by 1.8% over the last year, which is higher than the 1.4% last quarter. But before you get too excited, 1.8% is still very low. The long run average is 3%. This means that the economy is still very sluggish.

It has been sluggish because interest rates have been high in recent years as the RBA has tried to reduce inflation.

The biggest contributor to economic growth was household spending. It was also positive to see that spending on non-essentials grew faster than spending on essentials as households freed the purse strings.

This is likely because the Reserve Bank has cut interest rates three times this year. Although the last interest rate cut in August was too late to impact these figures. It is also an argument for why the Reserve Bank should continue to cut interest rates. With economic growth still very weak, further interest rate cuts are needed to support further household spending.

The second biggest contributor to growth was exports. This was driven by a bounce back in iron ore production after adverse weather conditions in the previous quarter. An increase in agriculture exports, particularly grain also helped, along with an increase in tourism.

The government sector didn’t add or subtract from growth this quarter, with a small increase in government spending being offset by a drop in government investment.

Private investment continues to be weak. Business investment is one of the best ways to grow productivity and businesses ongoing reluctance to invest could be a part of the slowdown in productivity growth.

The latest figures show that household spending is the main support for economic growth. Let’s hope that the Reserve Bank recognises this and continues to cut interest rates.