Aus GDP growth was a little bit better than expected at 0.6%QoQ and 2.6%YoY in Q2, with quarterly growth a little better than the last 9 months or so. Details of the data, however, don't paint a picture of improving conditions, with growth likely to resuming slowing in 2H13.
The details of the expenditure measures of GDP were once again confused by a transfer from the public sector to the mining sector in NSW, with the following charts adjusting for these large flows that confuse real contribution to activity.
All areas of investment were a small drag on economy in the quarter, although it was nothing particularly dramatic from any one area. Household consumption was a little better than expected, while inventories also made a large contribution as heavy destocking in the wholesale sector in Q1 ended.
Getting caught up in the the QoQ movement can miss the bigger picture, which continues to be one of weakness in investment weighing on the overall economy.
Looking at YoY contributions to growth, private sector investment is now a drag on GDP, although stronger net exports is helping to offset this.
When adding in the household sector, its not apparent that lower interest rates are supporting the switch in drivers of growth just yet. The contribution from consumption has edged lower, but its dwelling investment that has yet to make a meaningful impact on growth. This should come in the coming quarters, although won't be massive.
Government investment is also turning into a small drag on the economy. Fiscal consolidation has become a more pressing issue, although the next likely Coalition government will have to be careful that they don't contribute to a potential recession rather than help offset it.
Adding in the movements from inventories gives an overall slower picture, albeit not disastrous at this stage.
Policy makers still have time to boost other sectors as investment continues to roll over. This decline will intensify from a YoY standpoint, with private sector investment already 5% off its peak levels of December 2012.
I think this will take growth below 2%YoY, even with the improvement in other sectors in train. While this is not a total disaster, its still below the expectations of the Treasury and the RBA and implies more rate cuts and AUD weakness.
