GDP figures hide weak climate

AUSTRALIA’S strong GDP growth for the December quarter and for 1999 overall has hidden the weak nature of the current business climate.

It was not private spending which pushed the GDP but that of government, particularly in East Timor, which kept Australia in positive territory.

This is the sharp response from Australian Chamber of Commerce and Industry chief executive Mark Paterson to news of the 1 per cent increase in Australia’s GDP during the December quarter.

“The (GDP) increases we see are public sector driven, with particular emphasis on expenditure in East Timor,” Mr Paterson said.

“Removing these factors presents a very different picture of the current state of the Australian economy.”

He said, on the surface, the national accounts showed an economy that had grown, seasonally adjusted, by 4.3 per cent across the year.

“If the accounts were not so distorted by Australia’s East Timor commitment, these would be excellent results,” Mr Paterson.

The most emphatic sign of slowing economic conditions is in private sector investment data.

Overall, private investment fell by 4.6 per cent.

Investment in dwellings fell 3 per cent. Investment on other buildings and structures fell 11.7 per cent; machinery and equipment spending dropped 6.2 per cent.

“These are massive reductions in the level of private investment and they have occurred in only the past three months,” Mr Paterson said.

The other component of the private sector – consumption expenditure, while growing by 1.4 per cent, was not enough to offset the private investment decline.

Mr Paterson said inflation should not be a concern.

“(The) national accounts are a clear warning that it would be madness to ignore,” Mr Paterson said.

“The data show 60 per cent of the growth rate is due to public sector activity.

“There are serious weaknesses now appearing in private sector demand. The Australian economy is not booming.

“It ought to be obvious that the last thing this economy needs, given these numbers, is another increase in interest rates,” he said.

This sentiment does not sit well with consumers, who, according to a recent survey, expect inflation to climb and will adjust their spending and investments accordingly.

The Melbourne Institute’s Survey of Consumer Inflationary Expectations shows inflationary expectations are at their highest level for ten years.