End-of-year rebound

March 2, 2017

A 2.3% rise in non-housing construction, which is heavily dominated by mining sector investment, contributed to the economic rebound.A 2.3% rise in non-housing construction, which is heavily dominated by mining sector investment, contributed to the economic rebound.


The Australian economy rebounded in the final three months of 2016, reversing losses suffered in the September quarter and avoiding a “technical recession”.

December quarter growth of 1.1% – revealed in national account figures published on 1 March – came as a relief following a surprise 0.5 per cent fall in Gross Domestic Product (GDP) in the previous quarter.

Mercer senior investment consultant Simon Calder says “anomalous” falls in household spending and public sector investment which showed up in September figures were reversed in the fourth quarter.

Calder says a 2.2% rise in exports and a 2.3% rise in non-housing construction – which is heavily dominated by mining sector investment – also contributed to the end-of-year rebound.

“That’s a bit surprising after at least seven consecutive quarterly falls, but it’s consistent with the idea that really, really big falls in mining investment may be behind us,” Calder says.

After peaking at over 6.5% in 2012, the share of mining investment in GDP had fallen to a little over 2.0% in the final quarter of 2016, Calder says.  Before the China boom, the long-term average was around 1.8%. 

Overall the economy grew by just 2.4% over the course of 2016, below most estimates of trend growth but a decent outcome considering the strength of some of these major headwinds.

No recession here

The turnaround meant the economy avoided technical recession.

GDP – essentially the market value of all the final goods and services the country makes in a year – is used to measure the economy’s growth. A technical recession occurs when GDP shrinks for two quarters in a row.

Australia has not suffered a recession for 25 years and is on course to break the Netherlands’ record – 26 years of continuous growth – by continuing to expand GDP at least until the end of June this year.

Business confidence is up

Calder says Australian manufacturing figures, also released this week, show sentiment rose to a six-year high despite the rapidly shrinking auto assembly and parts sectors. And recent business sentiment surveys all point to faster growth in 2017.

“Business and corporate sectors around the developed world have suddenly become optimistic, perhaps because earnings growth may be finally turning up after five years of a steady slowdown,” Calder says. “However, the household sector is continuing to do it tough, particularly outside parts of Sydney and Melbourne, and there are still few signs of any pick up in real wage growth.

“I wouldn’t be surprised, given these very high expectations, if actual hard data soon starts to disappoint.”   

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