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Economists encouraged by GDP details

AAP logoAAP 9/09/2016 Garry Shilson-Josling, Economist

Economists are seeing encouraging signs of the economy's transition away from growth that had been dominated by the mining investment boom for nearly a decade.

Those signs were found in the June quarter national accounts.

Gross domestic product (GDP) rose by 0.5 per cent, lifting annual growth to 3.3 per cent, exactly in line with the average for the first 24 of the 25 years of recession-free growth the economy can now boast.

But economists looked beyond those simple numbers.

"The national accounts contain a wealth of data and information and there is often far more to the economic story than the simple headline GDP print that grabs all of the attention," Royal Bank of Canada's Su-Lin Ong said.

She pointed to a rise in business investment in machinery and equipment, as well as a rise in the terms of trade, the ratio of export price to import prices which has a big effect on national income.

The figures showed the drag on growth from downward trends in both investment and the terms of trade was waning.

But it was not all good news, notably for consumer spending.

"We have long highlighted the challenges to the household sector including stagnant wages growth, a patchy labour market, and high levels of debt, and we retain below-trend consumption forecasts," Ms Ong said.

But Commonwealth Bank economists Michael Blythe, Michael Workman, John Peters and Kristina Clifton said the economy's pace was consistent with unemployment edging down.

"Positive labour market outcomes should help ease job security fears and boost household sentiment."

And that in turn should help consumer spending.

They also said the drag from falling mining investment was weakening.

"Grouping industries by broad characteristics shows a more balanced growth profile than in recent years," they said.

The UBS economics team of Scott Haslem, George Tharenou and Jim Xu said the easing of the headwinds from weak national income (caused by falling terms of trade), and the improved prospects for business investment supported their outlook for economic growth, which was more upbeat than most.

"Obviously, with growth dominated by government spending and net exports but only moderate ongoing gains in consumption and housing, some will argue a 'soft underbelly'," they said.

"But it's precisely this versatility of 'drivers' that has now delivered Australia 25 years of uninterrupted economic growth."

The HSBC team of Paul Bloxham and Daniel Smith was also upbeat.

The economy is currently maintaining a solid growth rate despite the significant drag from falling mining investment, they said.

"With that drag set to fade over coming quarters, the outlook for growth remains positive."

At ANZ Bank, Kieran Davies and Felicity Emmett were encouraged by the hitherto "missing ingredient" in the economy's acceleration.

"Non-mining business investment has picked up, driven by an ongoing strong recovery in the non-mining states," they said.

"The drag on growth from falling mining investment is at its worst point and should be minimal next year," they said.

"Also, the worst of the income shock looks to be over."

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