Statisticians alleged to have lost billions of dollars in Australian exports

SYDNEY (Reuters) – Australia's export earnings are booming with soaring resource prices, but a bizarre statistic means tens of billions of dollars are disappearing from key measures of growth, weakening the economy.

Money continues to circulate in the country – increasing profits, dividends, stock prices and tax revenues. It has just been considered "inflation" and devoid of real gross domestic product (GDP) measures that dominate media coverage.

This is a common practice around the world and usually makes sense. After all, if GDP grew by 10%, but only because prices had risen by 10%, most people would not be better off.

But in the case of Australia, it is foreign buyers who pay the highest prices, not locals, while domestic inflation has slowed to its lowest rate in two years.

"It's unusual, but Australia is unique because of the size of the products exported, most of which have gone up in price," said Bruce Hockman, chief economist at the Australian Bureau of Statistics.

Iron ore alone rose 13% in March and 25% the year before. In total, export prices rose 15% over the past year until March and provided the country with the largest trade surplus of all time.

Yet the additional export dollars earned are still classified in inflation and eliminated by the statistician to obtain a "real" GDP.

And it's a lot of money. In current dollars or current dollars, exports reached a record $ A 438 billion last year, but price changes were smaller and actual exports were only $ 397 billion.

The "losses" of A $ 41 billion represented a whopping 2.1% of nominal GDP. For the single quarter of December, nominal exports added 0.8 percentage points to growth, but expressed in real terms, they actually subtracted 0.1 percentage point.

This is one of the main reasons why growth was so disappointed during the quarter, rising only 0.2%. This, in turn, put pressure on the Reserve Bank of Australia (RBA) to hamper the economy by lowering interest rates.

Rinse with money

The divergence only intensifies as soaring iron ore prices boosted exports to unprecedented levels in March.

The $ 14.7 billion trade surplus was undoubtedly the largest ever and could have given Australia its first current account surplus in four decades.

Although much of this money will be lost from global GDP, the dollars are not imaginary.

Ask miners who saw their pre-tax profits climb by 27% in 2018, driving up share values ​​and dividends. Shares of Fortescue Metals Group Ltd jumped nearly 70% in the first quarter, while BHP grew by 12% and Rio Tinto by 25%.

Australia's main equity index has increased by $ 200 billion since the beginning of the year and companies will pay dividends of more than $ 29 billion from February to June.

Affected by liquidity, some miners are investing again after years of cuts, a move underlined by the RBA that missed an opportunity to cut interest rates this month. Fortescue, which recently gave the green light for a $ 2.6 billion iron ore project in Western Australia, led the pack.

The increase in profits has in turn increased tax revenues, allowing the ruling Liberal national parties and the opposition Labor Party to offer generous tax cuts before the federal election. May 18th.

"The rest of the world pays a lot more to Australia for its exports," said Andrew Hanlan, senior economist at Westpac.

"The government has the flexibility to reduce the income tax and increase spending, thus providing support to the household sector."

LIVING IN THE NOMINAL WORLD

All these missing dollars appear in the nominal measures of GDP and income, but are generally neglected by the markets.

This is unfortunate because the annual growth of nominal GDP has accelerated to reach a steady pace of 5.5% in December, well above the real rate of 2.3%. The additional growth for 2018 as a whole was worth A $ 2,320 for every man, woman and child in the country.

If this recovery was simply due to faster inflation, it could be written off, but it is not. Inflation slowed to 1.8% at the end of 2018 and slowed sharply to a two-year low of 1.3% in March.

In the past, when nominal growth had progressed in this way, the actual measure tended to follow – albeit with a lag – hoping that the current transition period would be only temporary.

"Australia is one of the few developed countries where nominal and real GDP can move in very different directions, all because of commodities," said Michael Blythe, chief economist at the Commonwealth Bank of Australia. .

"Exports lead to a significant increase in national income, which is not reflected in real GDP," he added. "For now, I would say that nominal numbers provide a better reading of the economy. After all, it's the nominal economy in which people really live. "