Wednesday, September 1, 2010

Interpreting today's National Accounts

A cautionary tale from RMIT's Dr Steven Kates over at Catallaxy Files:

The National Accounts for June 2010 have come out today and will provide those who look no deeper than the headline figure with the belief that the Australian economy is on a shortcut to prosperity. The numbers tell a different story, and while I have no better idea about the future than anyone else, there is nothing in the recent past that should make anyone think things are heading in the right direction.
Three sets of figures stand out as part of a cautionary tale told by the numbers.
The first is the set of figures on Private Gross Fixed Capital Formation, the data on private sector investment. Across the year the growth rate was a quite sedate 1.3% and for the quarter itself (I always use the trend numbers), the growth rate was actually negative, coming in at -0.1%.
Meanwhile, for Public Gross Fixed Capital Formation the growth rate was 38.5%, a monstrous increase. The quarterly figure was only 4.7% which means the numbers are coming back down to sane proportions but even so.
Then thirdly there is the figure for imports which rose by 15.9% across the year, raising spectres of its own. For the quarter it was 1.9%, and for the first time this financial year was lower than the level of exports.
There is a story of debt printed all over the accounts, both domestic and foreign. We have as a nation splurged to get a result, but the costs are still to be paid.
The notion of a double dip, especially after efforts made to maintain the appearance of growth in an economy heading into recession, is in part due to the need not only to unpick the production errors that led to recession in the first place, but now to undo all of the structural changes introduced as part of the stimulus. People producing and installing pink batts now have to find a real job although the major horrors may take place in the United States. We shall see what happens then.


  1. Heard today Oz banks are looking to raise $150billion from offshore shortly (they're a little worried about the PIGS) and there not being enough private investment for them to lend against.... people are shell shocked

  2. Again, I note that our GDP figures are a reflection of USA's GDP in the 2006/07 financial years. This was a time when conventional economists thought everything was rosy - expanding economy, strong consumer (evidenced by strong imports and low savings rate, but low loan delinquencies) high construction numbers and dwelling investment and so forth.
    What the high GDP figures masked was that aggregate demand was being inflated by credit growth - more consumers borrowing to buy more - including houses.
    Take away the credit, and the GDP plummets. We are following the same line, just 3-4 years later: and exports to China and India will not save us from any substantial decline in credit.