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The signs for Australian GDP this week are ominous

Photo by Quinn Rooney/Getty Images.

Australia’s company profits in the fourth quarter of 2015 were worse than expected.

So the market was right to forecast a reversal in company profit numbers for 2015’s fourth quarter after the 1.3% rise in the third. But with a print of -2.8%, the data for Q4 was even weaker than the average market estimate for a fall of 1.8%.

The larger than expected drop was driven by a number of industries that posted big falls.

Mining profits fell 6.2% in current price terms on a seasonally adjusted basis. Showing the impact of the fall in commodity prices, the ABS revealed that, in volume terms, mining profits rose 0.4% for the quarter. Retail trade also suffered a big fall, dropping 6.4% in current prices terms, seasonally adjusted, for the quarter, but like mining retail trade rose 0.7% in volume terms.

There were also some very large falls in seasonally adjusted terms for professional, scientific and technical services (-9.5%), administrative and support services (-13.5%), wholesale trade (6.8%), and “other services” (-18.9%)

On the positive side of the ledger financial and Insurance services put in a strong showing, with profits up a seasonally adjusted 10.8% in price terms, although in volume terms profits dipped 3.2%. Accommodation and food services rose 4.9%, while construction was up 3.2%, seasonally adjusted.

UBS economists George Tharenou and Scott Haslem said in a note to clients following the release that teh company profits fall was “the worst since Q2-14, and dropped back to -2.3% y/y.” However they noted that ” on a GDP basis (i.e. GOS post IVA), profits were likely ~flat q/q.”

They were concerned however by the sales figures embedded in the data which they sais is a proxy for GDP production and printed ” much weaker at only 0.1% q/q, dragging down the y/y to a 2-year low of only 1.3%.”

Markets also overestimated the build in inventories during the fourth quarter. The seasonally adjusted fall of 0.4% missed market expectations of a gain of 0.2%. That’s important according to Tharenou and Haslem the result was unexpected and subtracted ” 0.16%pts q/q subtraction from Q4 GDP.”

Taken together, this data will be a negative for Wednesday’s release of GDP.

However, there are more partial indicators released tomorrow before economists put their final guesstimate on Q4 2015’s rate of economic growth.

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