Look through the spin: The economy remains mired in an income recession

The December quarter National Accounts revealed that the nominal GDP expanded by 1.8% in 2015, which represents the worst calendar year outcome since 1992. Even during the depths of the financial crisis, the nominal economy managed to expand by 2% in 2009. The fact that nominal GDP has grown well below 4% pa since 2012 confirms that the economy has been stuck in an income recession for four consecutive years. It is little surprise that weakness in consumer and business sentiment has persisted during this time. The National Accounts confirm the ongoing effects of Australia's capex cliff, with private business investment detracting more than 1 percentage point from nominal GDP growth in 2015. The capex cliff evident from the ABS survey of capex intentions suggests that the drag from business investment should persist for the next 18 months. Against this backdrop, the RBA will have little choice but to keep interest rates low for an extended period, and likely deliver two more rates over the course of this year. (VIEW LINK)