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Government spending and housing drives Q2 GDP

Government spending and housing drives Q2 GDP

Public spending and housing helped boost Australia’s GDP by 0.5 per cent in the second quarter of 2016 and 3.3 per cent year-on-year, according to the latest national accounts.

The results covering the period April-June 2016 show that the period resulted in the fastest pace of growth in year-ended terms since mid-2012, however the second quarter performed less well than expected — missing market projections by 0.1 per cent.

The increase was attributed to a rise in government spending, which increased by 1.9 per cent in seasonally-adjusted terms, adding 0.3 per cent to real GDP growth.


Public investment increased 15.5 per cent, driven by state and local general government (21.0 per cent). In part this reflected the transfer of assets from the private sector, which contributed to a fall of 3.4 per cent in private investment.

In terms of housing, new dwelling construction was higher, but was mostly concentrated in renovation activity rather than construction of new dwellings. Despite this, ANZ has noted that new dwelling investment is “adding $5 billion more to GDP each quarter versus four years ago”, but added that it is slowing.

The year-on-year change in gross fixed capital formation for private dwellings increased by 8.3 per cent, and household final consumption expenditure increased by 2.9 per cent since the year ended June 2015.

However, household consumption growth on a quarterly basis was weak, down to 0.4 per cent from 0.8 per cent in the first quarter of the year.

As well as increases in GDP, there were also marked declines in some areas — with the mining industry reporting its largest fall in seasonally-adjusted terms since March 2006. The seasonally-adjusted estimate fell 3.5 per cent following a strong March quarter result (6.5 per cent).

Speaking of the figures, Felicity Emmett, ANZ’s head of Australian economics, said: “The 0.5 per cent quarter-on-quarter gain in Q2 GDP is a solid result following the 1.0 per cent gain in Q1. It suggests that the transition towards non-mining growth drivers is continuing.

“Mining investment is falling at a more rapid rate… but the drag on growth is likely to be at or close to its peak, and stabilising commodity prices mean that the hit to national income is fading. On our calculation, new non-mining investment is picking up, led by an ongoing strong recovery in the non-mining states.”

She added: “Housing remains a stalwart of the recovery and is likely to continue to contribute to growth this year given the record backlog of work. Consumer spending has been growing solidly, but the step down in growth in Q2 is unexpected and concerning. Moreover, growth in services exports, which has been a key driver of the non-mining recovery, has stepped down suggesting that the AUD is not providing as much support to demand.

“Public spending, however, has lifted, both on the consumption and investment side, and we think that the ongoing program of infrastructure spending will support public investment growth this year and next.”

Ms Emmett concluded: “While growth remains solid, we think the RBA remains focused on low inflation, where cost pressures remain weak.

“For policy, today’s numbers highlight the dilemma the RBA is facing, namely, a combination of relatively strong activity, an okay labour market, but ongoing weak inflation and unwelcome strength in the AUD. We think that the weakness in inflation will keep the Bank’s easing bias intact, although we acknowledge that the renewed strength in housing reduces the probability of acting on the bias.”

[Related: Australia headed for ‘growth upswing’]

Government spending and housing drives Q2 GDP

Annie Kane

Annie Kane is the editor of Mortgage Business.

As well as writing news and features on the Australian mortgage market, financial regulation, fintechs and the wider lending market – Annie is also a regular contributor to the Mortgage Business Uncut podcast.

Before joining Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.

Contact Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.


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