Major renovations contributed absolutely zip to GDP: Pete Wargent

Major renovations contributed absolutely zip to GDP: Pete Wargent
Major renovations contributed absolutely zip to GDP: Pete Wargent

The ABS released the Australian National Accounts for Q4 2014 which showed the economy growing by an underwhelming 0.5% in the quarter and 2.5% over the year.

In trend terms growth was just 2.3% over 2014, which is below the long run average.

Looking on the bright side this completes a remarkable 93 consecutive quarters since Australia experienced a recession.

In truth, though, this was another soft result and a slowing rate of annualised GDP growth which appears to be commensurate with further monetary policy easing.


Domestic demand led by Sydney

The Domestic Final Demand picture showed that as expected the strength of the housing markets in Sydney and Melbourne have boosted demand locally.

Dwelling construction and record high building approvals are firing in both capital cities and the "wealth effect" of rising dwelling prices has improved consumption in both New South Wales and Victoria.

State Final Demand which is at best only an indicative measure remained weak in Canberra (ACT) and in the southern states of South Australia and Tasmania.

The negative year on year readings for Western Australia and Queensland are not unexpected, reflective of mining construction tailing away and a number of diabolical regional economies at the local level.

Contributors to growth

GDP growth of 0.5% for the quarter was held aloft by net exports. While non-residential construction acted as a drag it was heartening to see new housing investment contributing 0.2ppts to growth. 

Dwelling investment

Indeed the "new dwellings" component of dwelling investment improved substantially by 12.4% over the past year, and the Reserve Bank will be keen to see this continue over the next couple of years as mining construction declines.

Note that major renovations contributed absolutely zip to GDP - a stunning 0.0ppts.

Although Sydney has been through a renovations mini-boom, across the rest of the country the trend is at best moribund.

National and household income 

While real net national disposable income increased by 0.4% in Q4 to be 0.5% over the year, in per capita terms this reading did not increase in Q4 and was negative in 2014. 

Meanwhile the most recent commodities index release showed that Australia's terms of trade are set to continue declining in Q1 2015.

At the household income level employee compensation growth has slowed markedly following on from a wage price index at a survey low reading of +2.5%, although gross disposable income fared somewhat better across 2014.

While interest paid on dwellings began to rise again through 2014 - and logically we should expect to see this chart rising over time due to Australia's high rates of immigration - mortgage serviceability for existing homeowners on variable rate mortgages has improved enormously since Q3 2008.

The shape of the above chart mirrors the findings of the Reserve Bank's own submission to the Inquiry into Affordable Housing which found that repayments on new housing loans when charted against household disposable income had improved dramatically to be way below the average for the past decade.

Anyone with a variable rate mortgage over the past six years will attest to the same - not that this is much consolation for first home buyers in Sydney, granted. 

The Wrap

Not entirely unexpectedly this was a soft result which marginally missed expectations and won't do a great deal to change the view that interest rates are likely be cut again before the end of H2 2015.

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His book 'Four Green Houses and a Red Hotel' is out now.

Pete Wargent

Pete Wargent

Pete Wargent is the co-founder of, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

Economy Pete Wargent

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