Australia: Strong rise in exports help the economy to revive growth in Q3
December 2, 2015
Australia’s economy picked up pace in the third quarter of the year, expanding 0.9% over the previous quarter and marking an over-three-year high, according to data released by the Australian Bureau of Statistics (ABS). The expansion was a noticeable improvement over the previous quarter’s 0.3% expansion and was driven mainly by a strong external sector, which benefited from a surge in mining exports. Market analysts had anticipated a strong improvement in Q3 as a result of a turnaround in export growth, however, Q3 still managed to narrowly beat expectations by 0.1 percentage point. On a year-on-year basis, Australia’s economy expanded a robust 2.5%, which marked an improvement over Q2’s 1.9% growth.
The third quarter’s positive reading was brought about by a strong comeback in exports related to mining commodities, which had declined in Q2. Although global demand for commodities has fallen overall, Australia has managed to maintain strong mining exports as mining operations have slashed operating costs in an effort to defend market share. Exports grew 4.6% in Q3, contrasting Q2’s 3.3% contraction, and marked the strongest gain since the beginning of the mining boom in September 2000. Q3’s strong reading is also partly attributed to the poor figure in the second quarter. Inclement weather in Q2 put a transitory damper on export growth, particularly in heavy industries such as mining. The external sector contributed a very solid plus 1.5 percentage points to growth in the third quarter, which contrasted Q2’s negative 0.8 percentage points. Imports contracted 2.4% in Q3 as the weak AUD began to impact the economy (Q2: +0.1% quarter-on-quarter).
Australia’s government has acknowledged the need to shift away from a resource-centered growth model, to one in which services and domestic consumption play a bigger role as demand from China, the world’s growth engine, wanes. Data from the domestic side of the economy showed positive developments coming out of household consumption and investment in the housing market, which together are supporting Australia’s transition to a broader growth model. These developments, however, were not significant enough to offset the sharp decline in fixed investment, which fell a staggering 4.0% over the previous quarter (Q2: -0.2% qoq)—the lowest figure since December 2000—and was driven by large-scale mining projects winding down against a backdrop of low commodity prices. As a result, domestic demand fell 0.5%, contrasting Q2’s 0.6% increase, with private consumption growing 0.7% (Q2: +0.6% qoq), and government consumption falling to a 0.7% expansion (Q2: +1.7% qoq).
Author: Robert Hill, Economist