Consumers fuel economy’s rebound

By Marty Silk and Prashant Mehra
(Australian Associated Press)

Big spending consumers have triggered a rebound in Australia’s economy but the surprise improvement has not allayed fears that stagnant wage levels and high household debt will curb growth in 2017.

Gross domestic product grew by 1.1 per cent in the final three months of 2016, taking annual growth to 2.4 per cent, well above the market’s expectations and the Reserve Bank of Australia’s forecast for the year.

The main contributors to December quarter growth were a 0.9 per cent rise in household consumption expenditure, a 7.7 per cent rise in public investment, a 2.3 per cent rise in private non-dwelling investment and a 2.2 per cent rise in exports.

JP Morgan economist Ben Jarman said stronger household consumption was driven mainly by spending on furnishings and household equipment, transport and recreation and culture.

He said household spending was likely linked to continued strength in the property market.

“This looks very much like a late-cycle burst of a housing market-induced wealth effect,” Mr Jarman said.

Improvemed consumer spending was also reflected in strong half-year sales and profits for consumer goods retailers JB Hi-Fi, Harvey Norman and Nick Scali.

ANZ senior economist Felicity Emmet said the data suggests there was a broad improvement the economy’s momentum in late 2016.

“The better tone to the activity data is consistent with the improvement in business conditions and the employment data and has continued into early 2017,” she said.

But Citi economists doubt household spending will continue to outpace household income growth.

Wages fell 0.5 per cent in the December quarter, and fell in four out of five mainland states, to be only 1.5 per cent higher for the year.

The Citi economists said consumption was supported by households drawing down on their savings, reducing the household savings ratio its lowest level since the second quarter of 2008, to 5.2 per cent.

“Given high debt, households may not be prepared to keep lowering their saving,” they said.

“We therefore don’t expect the above trend fourth quarter GDP result to be repeated in the first quarter of 2017.”

Most economists said Australia will equal the Netherlands’ record of 26 consecutive years of growth by continuing to expand until at least the end of June, 2017.

December quarter growth meant the economy avoided technical recession, or two consecutive quarters of contraction, following a surprise 0.5 per cent fall in GDP in the September quarter.

“There is not a country I believe who would not want to swap places with me at the G20 when I go there in a few weeks time,” Treasurer Scott Morrison told reporters in Canberra.

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