GDP

March 14, 2017

Gross domestic product (GDP) is a major indicator to measure to health of a country’s economy. It measures the total value of all final goods and services produced in economy in a given year. Analysing the rate of change of GDP is the best gauge of an economies ups and downs.

 

 

 

 

 

Following a 2.4% increase in 2014, Australia’s real GDP grew 2.8% according to the latest national accounts figures release by the Australian Bureau of Statistics.

On a national level, from 1992 to 2015 Australia’s economy grew on average 3.3% per year, a
performance unrivalled by any developed country. In fact, Australia was one of the few developed countries that recorded positive after the GFC. This is primarily due to boom in mining investment, in particular coal and iron, as commodity prices rose in the early 2000’s.(1) However, a global oversupply of commodity prices has caused prices to retreat.

 

Consequently, areas which were primarily resource driven have been significantly affected. Regional WA and Perth were both strong performers with an average annual GDP growth of 6.2% and 4.3% until 2015. This has dramatically dropped as mining investment fell, performing at 2.3% and 1.6% from 2015 - 2016.

 

Mining investment is projected to fall by over 25% in 2015-16 and over 30% per cent 2016-17. While non mining investment is expected to increase by just 4% in 2015-16 and 7.5% in 2016-17.(2)

 

As mining is declining, the financial service sector is now one of the main drivers of Australia’s GDP, producing 9.3% of Australia total Gross Value Added (GVA).(3) This contribution is important to address the decreasing contribution from the mining sector.

 

With Australia’s robust economy and growing dwelling prices, the finance sector plays a key role in financing these dwelling investments. This is continuing to grow, supported by low interest rates and strong population growth.

 

From 2015 to 2016 the construction industry also produced more of an income mining with a GVA of 8.7%. The construction industry engages in residential, non-residential and engineering construction. Engineering construction has peaked with resources and is now in down-turn, falling by 14.2% in 2014-15. While non-residential construction is expected to remain consistent with low interest rates and a lower Australian dollar.  On the other hand, demand for housing in capital cities is increasing therefore the the residential sector is predicted to be the strongest performer.(4) This evident in Sydney and Melbourne strong annual GDP growth, performing 4.5% and 4.4%.

 

A key question for the Australian economy is whether investment in non-mining sectors will pick up and cushion the impact of decreasing mining investment. GDP growth remains below its long term average, so it seems that both the service and construction industry need to produce more in order to match that of the resource sector. It will be interesting to monitor Australia’s GDP in the coming years.

 

(1) http://minister.industry.gov.au/ministers/frydenberg/speeches/mining-and-australian-economy-australian-governments-pri-orities-mining

(2) Budget Strategy and Outlook: Budget Paper No.1, Budget 2014–15, Statement 2: Economic outlook
(3) Australian Bureau of Statistics

(4) http://kreisson.com.au/201516-construction-industry-trends-and-forecast/

 

 

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