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 June 6, 2012 – 12:22PM

There’s a lot more to be happy about if the GDP figures are any guide.

This is a blockbuster set of economic growth figures.

The economy grew 1.3 per cent in the first three months of the year, giving an annual growth rate of 4.3 per cent.

Let’s put that in context. The “trend” rate of growth for the Australian economy – its average for the past decade or so – is about 3 or 3.25 per cent.

So we have an economy already travelling well above trend growth.

Looking forward, if the pace of economic growth in the first three months of this year were to be sustained for the rest of the year, the Australian economy would expand around 5 per cent this year. That’s fast.

Reserve Bank governor, Glenn Stevens, in his statement accompanying yesterday’s interest rate cut decision, described the pace of economic growth as “modest”.

He’d be blushing now. Growth is anything but modest. It’s robust.

But it’s all just mining, isn’t it?

Well, no. That’s the surprising thing.

Households were in fact the strongest contributor to growth this quarter, adding 0.9 percentage points to the quarterly growth rate. Business investment is the other major driver, and that’s where the mining boom comes in.

On the downside, net exports (exports minus imports) remain a drag on growth.

Spill over

By industry sector, the main contributors to growth were, you guessed it, mining, up 2.3 per cent in the quarter. But the boom is also spilling over into professional, scientific and technical services, up 2.8 per cent and financial and insurance services, up 1.7 per cent.

The multi-speed economy remains a firm reality, with state final demand in NSW growing just 1.9 per cent (second lowest after Tasmania) compared with 14.5 per cent growth in Western Australia.

But the big surprise in today’s figures is the strength of household spending.

It comes despite the household savings ratio remaining at an historic high for the past few decades of 9.3 per cent. That is, of every dollar they earn, households are saving around 9 cents.

The household savings ratio, having turned negative – ie. household spent more than they earned – in the mid 2000s. It turned sharply positive during the global financial crisis, with households saving more than 12 cents in the dollar. Since then, it has stabilised at around 9 cents.

Income boost

But with incomes continuing to rise, not only are there more dollars to save, there are more dollars to spend.

And spend we are.

Household spending grew 4.2 per cent over the year ended March quarter. Spending in hotels, cafes and restaurants grew 7.8 per cent. Spending on recreation and culture grew 5.6 per cent. Food spending rose 6.6 per cent, while spending on alcoholic beverages was up 5.8 per cent.

It’s hard to reconcile this spending with the constant complaints about cost of living pressures. Perhaps the economy is just so dire, we all need to treat ourselves a little.


There’s life in the Australian economy yet.

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