GDP strip not too bad a tease
You cannot do it, say government officials. It is just not right to look at our economic growth by taking various bits out of gross domestic product to see what you get then.
Let us do it anyway. It is at least an interesting exercise to show you what is driving our economy at the moment and what is slowing it down. We shall treat it as a game and do it first by taking out some of the high growth bits in the third quarter figures reported last week to see what sort of growth rate then remains.
The line running from the left of the first chart represents the GDP growth as reported, with a 10.4 per cent growth rate in the third quarter. Directly underneath it on the right side of the chart is what you get if you take out net trade in services.
This component has rocketed as our service industries re-assert their strength. Exports of services have grown by almost 15 per cent over the past year in real terms and we are not buying more services from foreigners. The comparable import growth rate was barely 1 per cent. Take that services surplus out of the figures and our third quarter GDP growth rate was only 8.3 per cent.
Next we also take out private investment in machinery and equipment, which has similarly rocketed. The third quarter growth rate here was 31 per cent as economic recovery gave industry the confidence to rebuild its capital base. We are now down to a third quarter growth rate of only 3.9 per cent.
Finally we take out that big swing factor, change in inventories, which is rising for the same reason. With these three high growth components out we are left with 68 per cent of the total economy showing a growth rate of only 0.9 per cent. In fact, growth was still negative on this basis in the first and second quarters. Bit of an eye-opener that, isn't it?
Now let us do it the other way round, taking out the low growth bits to see how high we could get GDP growth without them. The biggest is obviously private consumption expenditure with a third quarter growth rate of only 5.6 per cent. Take this out and you boost GDP growth to 16.4 per cent.
But it also accounts for 53 per cent of total GDP and that is perhaps too big a share to play the game of take it out and see what's left. We shall take three smaller low growth ones instead.
First comes construction expenditure, still sinking. Take it out and we get 11.7 per cent growth. Then out comes spending by residents abroad. We now go to 12.8 per cent. Finally we take out sluggish government consumption expenditure and we have the 79 per cent of the economy without these three growing at 13.7 per cent. It is not quite as dramatic a difference as you get when you take the high growth components out and, as the second chart indicates, it gives you less of an improvement now than it did in the first quarter.
Let's sum it up. Our economic recovery is still on the whole quite narrowly based but it is based on the right things. Service industries are our future and we are making the facility investments we need to sustain them.