SYDNEY (Reuters) – Australia's export revenues are flourishing as a resource price increase, but a statistical challenge means that tens of billions of dollars are disappearing from the main growth measures, making the economy seem weaker than it actually is.
FILE PHOTO: Ships are waiting to be loaded with iron ore, seen in Port Hedland in the Pilbara region of Western Australia on 3 December 2013. REUTERS / David Gray / File Photo
Cash still throws through the country – increase profits, dividends, share prices and tax revenues. It is only printed as "inflation" and removed from the real measures of gross domestic product (GDP) that dominate the media coverage.
This is standard practice all over the world and usually provides perfect sense. After all, if GDP rose 10 percent, but only because prices rose by 10 percent, most would not be better.
But in Australia, foreign buyers are paying the higher prices, not the locals, while domestic inflation has slowed to its lowest rate in two years.
"It's unusual, but Australia is unique in the breadth of goods it exports, most of which have risen in price," explained Bruce Hockman, chief economist at the Australian Bureau of Statistics.
Iron ore alone climbed almost 13 percent in the March quarter and 25 percent the year before. Overall, export prices increased by 15 per cent this year to March and gave the country its biggest trade surplus.
Nevertheless, the additional export dollars earned are still classified as inflation and removed by the statistician to make "real" GDP.
And that's a lot of money. In nominal or current dollars, exports increased to a record $ 438 billion last year, but removing price changes and real exports was only $ 397 billion.
The "41 billion" lost was worth a large 2.1 percent of nominal GDP. In the December quarter, nominal exports alone rose 0.8 percentage points to growth, but in actual terms they actually pulled 0.1 percentage points.
There was a large base growth disappointed so poorly in the quarter by increasing by only 0.2 percent. This, in turn, has put pressure on the Reserve Bank of Australia (RBA) to give up the economy with cut interest rates.
FLUSH WITH CASH
The divergence only gets bigger as rising iron ore prices lifted exports to full-time levels in the March quarter.
The trade surplus of $ 14.7 billion was easily the largest on record and could even have endowed Australia with its first current cash surplus for four decades.
While much of that bonanza will be lost from headline GDP, the dollars are not imaginary.
Just asking miners who saw profit before tax, increased by 27 per cent in 2018, and bought up values and dividends. Stocks in Fortescue Metals Group Ltd jumped almost 70 percent in the first quarter, while BHP rose 12 percent and Rio Tinto 25 percent.
Australia's largest stock index has risen to $ 200 billion in value so far this year, and companies will pay more than $ 29 billion in dividends from February to June.
Flush with cash, some miners invest again after years of impact, a shift highlighted by the RBA when it skipped a chance to cut interest rates this month. The management of the package was Fortescue, which recently made progress for a $ 2.6 billion iron ore project in Western Australia.
The promise of profit, in turn, increased the tax receipts, so that both the ruling liberal national parties and the opposition Labor Party could offer generous tax cuts in front of a federal election on 18 May.
"The rest of the world pays Australia much more for exports," said Andrew Hanlan, senior economist at Westpac.
"The government has the flexibility to cut income tax and increase spending, thereby providing some support to the household sector."
LEV IN THE NOMINAL WORLD
All the disappeared dollars occur in nominal GDP and income measures, but are routinely overlooked by markets.
It is a pity that annual growth in nominal GDP rose to a fast 5.5 percent in December The extra growth in 2018 as a whole was worth A $ 2,320 for every man, woman and child in the nation.
If this pickup was only due to faster inflation, it could be written off, but Inflation weakened to a weak 1.8 per cent at the end of 2018 and broke strongly to a two-year low of 1.3 per cent in the March quarter.
Earlier, when nominal growth sped forward like this, the real goal tended to follow – albeit with a delayed offer – the current soft hopes the update is only temporary.
"Australia is one of very few developed countries where nominal and real GDP can go in completely different directions, and that's all because of commodities," said Michael Blythe, CFO of the Commonwealth Bank of Australia.
"Exports are driving a huge increase in national income, which not only shows in real GDP," he added. "So now, I want to say that the nominal numbers give a better reading about the economy. After all, it's the nominal economy that people really live in."
Reporting by Wayne Cole; Editing by Simon Cameron-Moore