ANZ thinks the brakes are on Australia's economy

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ANZ doesn’t think there’ll be much to celebrate when Australia’s GDP is released in two week’s time, forecasting paltry growth of 0.1% for the March quarter.

If correct, that’ll be well below the 1.1% increase registered in the December quarter, and leave the year-on-year rate at just 1.5%, something that would mark the slowest increase since the September quarter of 2009.

“GDP growth has been particularly volatile over the past few quarters, with changeable net exports contributions and weather patterns playing their parts. In Q1 2017, we expect to see both these factors have a negative influence on GDP,” the bank said in a note released on Thursday.

On household consumption, the largest component within the Australian economy, ANZ is forecasting a modest positive contribution to growth.

“For consumer spending, which accounts for a hefty 55% of GDP, we expect to see a moderate gain,” it says.

“Growth in retail sales volumes was soft at just +0.1% quarter-on-quarter, but mapping across to consumption spending suggests a slightly stronger outcome, while growth in spending on services looks set to be stronger than that for goods.”

Of the other major components, it is looking for a “moderate rise in business investment” with government spending expected to be “largely unchanged”.

Partially offsetting those positive contributions, it says that housing investment and net exports will likely drag on quarterly growth.

“Trade data suggest that net exports will be a drag on growth of around 0.4 percentage points, with solid import growth and broadly flat export volumes,” it says.

This table from the bank breaks down is forecast for quarterly GDP by individual component.

Source: ANZ

While ANZ is forecasting a weak quarterly result, it says that there are still a number of GDP building blocks due out in the next week or so that have the potential to materially impact its estimates.

“We will review our forecast after the release of key capex, profits, inventories, balance of payments, and government spending data,” economists at the bank said.

The next GDP input to arrive will be private capital expenditure that will be released on Thursday, June 1. The GDP report itself will be released on Wednesday, May 7.

Like ANZ, the NAB’s economics team isn’t expecting a humdinger of a GDP report either, warning earlier this week that there is a real risk of a flat or even a small negative outcome arriving on May 7.

It’s currently forecasting quarterly real GDP growth of 0.4%, but admits that the risks to its forecasts are to the downside.

Joanne Masters, a senior economist at ANZ, has been warning about the risks of slowing consumption growth since last year. She joined us for this week’s episode of Devils & Details for a discussion of the myriad factors combining to produce the drag we’re seeing on household consumption.

You can find the show on iTunes, or listen in below:

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