Local economy puzzles

Anyone who thought they knew how the Australian economy was faring would be kidding themselves.

This week we have seen the following data released:

• The March Quarter Current Account Deficit deteriorated to $8.85 billion, almost 6 per cent of GDP. The previous quarter’s figure was $7.97 billion. This is the highest quarterly CAD on record

• Net Foreign Debt rose slightly to $241.6 billion from $239 billion in the fourth quarter last year

• Retail sales fell 1.8 per cent in April. This was marginally weaker than expected following a rise in March of 2.3 per cent. In the year to April the retail sales figure rose 6.9 per cent

• The national accounts for the March quarter show the economy grew 1.1 per cent in the past three months, giving an annual growth rate of 4.8 per cent for the year.

Interestingly the biggest contributor to growth in the past quarter has been business investment in machinery and equipment.

Household consumption is buoyant with considerable spending on recreation, hotels, cafes and restaurants.

Mining, agriculture and manufacturing all contributed to the growth. The only industry that made little or no contribution to the growth figures was construction.

The up shot of these figures is an economy showing declining domestic retail spending but substantial overseas spending. This is reflected in the CAD blowout.

A previous Federal Treasurer considered that if our CAD reached 5 per cent of GDP, we could be considered a banana republic.

What happens now we have 6 per cent and rising?

The growth rate and strength of the Australian economy has surprised everyone who observes.

The other pleasing aspect of the GDP figures is that the business investment sector is starting to show some positive signs.

This would suggest confidence levels among business owners must be improving as they start to show some faith in future growth prospects.

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