Australia’s relentlessly cheery investors have jubilantly sent stocks up to a 4.5 year high after the release of new GDP figures, even though the data itself—a 0.6% expansion in the fourth quarter—is lackluster.
The country’s crucial mining sector is slowing down due to slack global commodities demand. And the nation’s housing market is slowing, with builders resorting to mortgage subsidies and discounts in an attempt to shift new homes.
The 0.6% expansion in fourth quarter GDP was a slight slowdown from the 0.7% growth in the previous three months. And much of the increase came from higher public sector spending. “If it wasn’t for a particularly large, and some would say, abnormal increase in public sector capital investment, GDP would be a lot weaker,” Citi senior economist Josh Williamson told the Sydney Morning Herald.
As this chart shows, public sector gross fixed capital formation ( GFCF) is on the rise while the corresponding figure for the private sector has fallen.
Meanwhile, possibly due to job losses in the mining industry, Australians’ disposable income is falling. That does not bode well for retailers and other sectors reliant on consumer spending.
In the face of these woeful trends, Aussie business confidence has nevertheless been rising. It is unclear why investors are so cheerful. It could be that, having not experienced a recession since the early 1990s, they are not as practiced at worrying about the future as Americans or Europeans. As economist Robert J. Shiller famously pointed out, unfathomable optimism is often found at the end of a bull cycle.