The release of the national accounts by the Australian Bureau of Statistics (ABS) for the December 2016 quarter confirmed that the Australian economy avoided a technical recession by growing and expanding during the most recent quarter. If the Australian economy had entered a technical recession it would have been based on seasonally adjusted data, and not trend data, as the latter had remained positive during the preceding quarter when the seasonally adjusted data was reported to have contracted.

While discussion about whether the Australian economy was heading towards a recession is now purely academic since the Australian economy managed to register economic growth based on both measures – seasonally adjusted and trend terms during the most recent quarter, there are a number of important considerations that need to be highlighted when analysing the contemporary economic growth dynamics.

This column discusses these considerations and draws attention to the more relevant and applicable measure of economic growth. Becoming informed about the current growth dynamics as well as the likely economic prospects is critical as it allows printing industry participants to be better positioned to make informed business decisions pertaining to future investments and business direction.

 Economic growth dynamics

Analysis that follows is based on trend data as it tends to provide a better reflection of the underlying growth dynamics. The chart depicts the primary drivers of economic growth, that is, the factors that are making positive contributions to economic growth, the engines of growth so to speak during the most recent quarter, compared to a year ago and a decade ago.

What becomes evident from the contributions to economic growth chart is that is shows how the growth dynamics have changed over time which in turn has implications not only for overall economic growth but also for economic activity within the printing industry. Both a decade ago and a year ago, economic growth in trend terms as measured by Gross Domestic Product (GDP) was more robust than it is currently. The economic contributions made by some pivotal indicators have essentially remained the same over the timeframe subject to the analysis. This is particularly true of general government expenditure.  

Household expenditure is making less of an economic contribution to economic growth in the recent period, while public investment is making an increased contribution but not as significant as it did a decade earlier. Investment in dwellings did not make a positive contribution in the most recent quarter but contributed positively during the earlier timeframes.  Non-dwelling construction has gone from a significant positive contributor of economic growth a decade ago to a detractor from growth in the recent period. This development reflects the reduction in resources driven engineering construction activity.

Machinery and equipment investment have yet to make positive contributions to economic growth during the period under review. Exports have made positive contributions to economic growth while imports made a positive contribution to growth a year earlier but detracted from growth in the most recent quarter and a decade earlier. Net exports the term used to measure the net impact on economic growth of exports and imports detracted from growth a decade ago; made a positive contribution to growth a year ago and had a neutral impact during the most recent period.

Sectoral contributions

Analysing the growth drivers by the components that comprise the GDP is a valuable exercise per se but another equally useful analysis involves determining which sectors are contributing to overall economic growth and how those dynamics have changed or are changing. This section looks at the key Australian sectors that comprise the Australian economy providing key insights on the sectors that are driving economic growth.

Sectors that made positive contributions to economic growth in the most recent quarter comprised of agriculture, forestry and fishing, wholesale trade, financial and insurance services, professional, scientific and technical services and health care and social assistance.

This compares to a year ago when sectors such as mining, construction, financial and insurance services, health care and social assistance, information media and telecommunications, rental, hiring and real estate, and public administration and safety all made positive contributions.

Within a period of 12 months the number of industry sectors contributing to growth declined from seven to five implying the current growth dynamics are narrower focused. A decade ago six sectors made positive contributions to economic growth comprising of mining, manufacturing, construction, transport and storage, financial and insurance services, and professional, scientific and technical services.   

What it means for the printing industry

Household expenditure remains a pivotal driver of economic activity and this is important also for the printing industry as household expenditure directly influences the growth dynamics of sectors that consume significant proportion of goods and services produced by the printing industry.

Growth prospects in the printing industry generally improve when households develop positive sentiments and those sentiments get reflected in household expenditure patterns. This is why the noticeable decline in household expenditure has serious ramifications for printing industry participants with the percentage points contribution to economic growth in GDP declining steadily from a reported 0.5 per cent a decade ago to a reported 0.3 per cent during the latest quarter.   

The fact that fewer industry sectors are making positive contributions to economic growth in the latest economic cycle compared to a year earlier and a decade ago implies that printing industry participants are now faced with a narrower economic growth base and economic drivers. This does not mean that sectors that printing industry relies on or services for economic prosperity such as retail trade, education, arts and recreation or accommodation and food services are not growing or expanding economically, they are, but their growth rates are not as significant relative to other sectors to make a positive or noticeable contributions to overall trend rates of economic growth.

Printing industry growth dynamics change

Reviewing the latest economic growth data for the printing industry makes for some baffling analysis. The significant revisions to the data especially during the June and September 2016 quarters have dramatically altered the printing industry growth landscape.

The June and September 2016 quarters industry value added data have been revised downwards by $23m and $65m, representing 2.7 per cent and 7.5 per cent downward revisions respectively. The impact of these revisions have meant that within the period of one quarter, the printing industry has gone from reporting four consecutive quarters of economic growth to now reporting three consecutive quarters of economic decline. The data revisions have fundamentally altered the printing industry growth dynamics changing it from an industry that was until recently growing robustly and expanding to one that is now trading through a period of economic downturn.

To gain better insights into the causes of the recent data revisions I contacted the ABS seeking answers. Unfortunately they were not able to provide initial answers over the phone so I followed up on their suggestion and I drafted a detailed email highlighting the revisions and their impact on the economic growth dynamics of the printing industry. The feedback I received from the ABS confirmed what I had suspected. I was informed that the revisions were caused by updated source data. The ABS incorporated late survey forms pertaining to the preceding quarter which tended to vary significantly from the initial imputed rates. Simply put the initial data capture and reporting by the ABS in effect overestimated the level of economic activity in the printing industry. The inclusion of supplementary data corrected that situation and helped to better reflect the actual strength of economic activity within the printing industry.              

Conclusion

To the delight and relief of both the media and economic analysts the Australian economy managed to avoid a technical recession during the most recent quarter when seasonally adjusted data confirmed that the Australian economy registered strong quarterly growth of 1.1 per cent.

The other more prevalent data set that of trend growth showed the Australian economy expanded modestly by only 0.3 per cent during the quarter.  It is the latter data that I use for analysing growth and as explained earlier, it is the trend data that better depicts the underlying economic strength and direction of the Australian economy.

Paying close attention to the current drivers of economic growth is important for industry participants as it impacts and potentially shapes their economic prosperity going forward. The current drivers of economic activity from a macro perspective and micro sectoral perspective were analysed and shown that they do not provide the printing industry with the economic condition and momentum for dynamic growth and expansion.

The number of sectors making positive contributions to economic growth has steadily declined over the past decade and those making positive economic contributions are not necessarily the main sectoral clients of the printing industry. Sectors such as retail trade or arts and recreation remain important industry sectors for the printing industry but they are not amongst the sectors that are driving contemporary economic growth.

Finally a serious issue for printing businesses revolves around the question of how sustainable is the current economic growth dynamics. With household income growing very modestly due to wage restraint forcing wage growth to fall to an all-time low, household consumption is being supported by a rundown in household savings.

If household consumption growth weakens then it would be necessary for business investment or more specifically non-mining based business investment to pick-up and commence making positive contributions to economic growth. Such a development will not only make economic growth more diverse and sustainable, but will also help foster a feeling of increased prosperity and security  for Australian households.

Hagop Tchamkertenian
Email: hagopt@i-grafix.com
Mob: 0414 953 271

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