economic update By David Marshall, Chief Financial Officer The National Australia Bank comments that the performance of the Australian economy through the middle of the year has again exceeded expectations. The 0.6% growth recorded for GDP in June quarter confirmed that the economy is emerging from recession and adds weight to the view that a durable recovery in the Australian economy is underway. NAB Senior Economist, David de Garis, further comments that most of the elements of domestic demand were contributing to growth, with tangible rises in private consumption, exports, and also in business investment. Government spending also edged higher. Holding back growth was lower dwelling construction activity, though leading indicators on home sales, approvals and finance point to an upturn in the months ahead. There is some expectation that the Australian economy's growth rate might fade in the aftermath of no government "cash splash". The NAB notes, however, that income tax cuts from the 2008 Budget took effect from July 1, pensioners will get an increase in September and, of course, there is the large element of public capital spending still to come with school building construction now underway. The fiscal stimulus is far from over. Global recovery is underway. NAB Senior Economist, Spiros Papadopoulos, continues that the performance of the Australian economy in the first half of 2009 has been remarkable, given the contracting growth seen in the developed economies. The GDP data again surprised on the upside in the June quarter, with growth up 0.6% in the quarter and 0.6% over the past year. Following the 0.4% growth in Q1, it confirmed that Australia avoided a 'technical' recession in the past year, with only the December quarter 2008 recording negative growth. In the June quarter, there were growth contributions from household consumption, business investment, exports and government spending. Detractions came from non-farm inventories, imports and dwelling investment. The July NAB Business Survey showed business confidence jumped a further 6 points to a reading of +10 points - the best since August 2007 and now approaching long run average levels. Business conditions edged higher to +1 in July from -2 in June, importantly maintaining June's strong gains. The Bank of New Zealand's Head of BNZ Market Economics, Stephen Toplis, noted that the August National Bank Business Outlook for New Zealand produced an unequivocally buoyant future picture for the New Zealand economy. In short, he suggests that, not only is the recession fast nearing its end in New Zealand but that GDP growth will soon be back up to trend. GDP growth headed for around 2.75% and interestingly, the optimism was reasonably widespread, with retailers the most optimistic since February 2007, manufacturers their happiest since May 2002 and the construction industry the most buoyant since March 2001. Both the services and agriculture sectors remain subdued when compared to their respective norms though even here confidence is nudging higher. From the United Kingdom, NAB Economist, David Tinsley reports there was some modest upside news from the second release of Q2 UK GDP. The headline was that the fall in output, estimated in the first release at 0.8%, was revised to show a contraction of 0.7%. The source of the upward revision was in production, where the volume of output was revised to show a fall in Q2 of 0.7% compared to 0.8% in the earlier release. Output in the service sector remained unrevised, indicating it fell 0.6%. Tinsley continues, that some of the apparent distinction between the UK's poor growth performance in Q2 compared to Germany and France is illusory, being really just a function of the timing of fiscal support packages. Q2 may prove the last quarter of the recession in the UK, for now at least. With the stock-cycle turning and net trade boosting growth, some further narrowing in the decline in consumer spending in Q3 will be enough to see a modest expansion in overall activity. Momentum could then build into Q4. Source: Australian Markets Monthly - "A monthly outlook for Australia, Key Global Economies and Markets"