I haven’t had much of a chance to write this week, with various things on my calendar (I’ll have some thoughts on the 11MP tomorrow, along with the April CPI). But I wanted to very quickly touch on last week’s GDP report.
The published numbers look pretty good (log annual and seasonally adjusted quarterly changes; 2010=100):
The economy grew 5.5% (in log terms) on a both annual as well as seasonally adjusted quarterly basis, with broad based growth on both the demand and supply side. This is far better than anyone had a right to expect after the poor numbers we saw in January and February.
However, in nominal terms, things don’t look anywhere near as good (log annual and seasonally adjusted quarterly changes):
On an annual bases, NGDP growth has dropped to 4.1% in log terms, while the annualised quarterly growth is just 0.1%. Most of this difference is due to prices – the sharp drop in oil prices (on the export side) and petrol and diesel prices (on private consumption) are limiting nominal income gains. A stark example of this is in the mining sector, which grew 9.6% in real terms, but contracted 5.6% in nominal terms.
This is where the dichotomy between the official statistics and feeling on the ground is coming from. We’re producing more, but getting less (or not much more) in return.
There’s also the continuing anomaly of retail sales, which was reported by DOS to reach double digit growth, carrying over from last quarter. Yet feedback on the ground and from retail associations suggest at best 3%-5% sales. April numbers are by all accounts even worse, due to the impact of GST.
So everyone is thinking 2Q2015 GDP growth is going to suck big time, and I’m no different. My IPI based forecast suggests 3.2% but with a fairly large confidence interval of ±3%, so anything goes here really. We’ll probably see a rebound in 2H15, as oil prices have stabilised higher, but consumer sentiment is pretty weak. I’m thinking we’re probably going to see a repeat of 2012-13, when investment was virtually the only driver of growth.
One last point is that DOS has rebased the GDP series to 2010 prices, from the 2005 used before. As a result, the economy is approximately 3.0%-3.5% larger, with a corresponding drop in deficit and debt ratios. We might actually see the government hit its 3.0% deficit target this year after all.
1Q2015 GDP report from the Department of Statistics