Australia will receive its latest economic report card today with the release of Q3 GDP.
After a slow start to the year, economic growth is expected to accelerate sharply on an annualised basis, thanks in part to the low base effect created by the shock contraction reported in the September quarter of 2016.
Some even think GDP growth could top 3%.
If that does occur, it will mark the fastest increase since the June quarter of last year, and will be a sharp improvement on the levels reported in the previous two quarters.
Importantly, it will also be in line with the RBA’s current forecasts and above the 2.75% level widely regarded as Australia’s current trend growth pace where unemployment and inflation are typically stable.
Here’s the state of play.
- In the June quarter, Australian real GDP grew by a solid 0.8%, up from 0.3% in the March quarter.
- Growth was powered by household consumption, government spending and lift in net exports, offsetting weakness in business inventories and non-dwelling construction.
- Household consumption, the largest component within GDP at just under 60%, contributed 0.4 percentage points (ppts) to growth, helped in part by a reduction in the household savings ratio which dipped to 4.6%, the lowest level since the September quarter of 2008.
- The result stretched Australia’s run without experiencing a technical recession — defined as two consecutive quarters of negative GDP — to 26 years.
- Despite the quarterly acceleration, the annual pace of growth held steady at 1.8%.
- Nominal GDP — taking into account changes in volumes and prices during the quarter — fell by 0.1% on the back of falling commodity prices. However, that followed two quarterly increases of 3.3% and 2.3%, and still left nominal GDP up 6.3% from a year earlier.
- Today, real GDP is expected to record another solid increase in the September quarter.
- Of the 23 economists polled by Bloomberg, the median forecast looks for an expansion of 0.7%. Individual forecasts range from an increase of 0.2% to 0.9%.
- Household consumption, business investment and inventories are likely to make positive contributions to growth, offsetting declines in dwelling investment and public spending and flat net exports.
- Creating some uncertainty about the scale of the quarterly increase, and helping to explain the divergence in individual forecasts, household consumption expenditure won’t be known until the report is released.
- We already know that retail sales volumes — accounting for around 30% of household consumption — grew by a paltry 0.1 percentage points over the quarter.
- The unknown is whether that result was mirrored by spending on services, accounting for the remainder of expenditure. The answer to that question will determine the scale of quarterly increase.
- Linked to the household consumption figure, there’ll likely be plenty of interest on movements in the household savings ratio and average compensation of employees.
- In recent years, households have saved less in order to sustain spending levels following tepid growth in household incomes, so it will be interesting to see whether that trend has continued given ongoing weakness in wage growth.
- Annual GDP growth is expected to accelerate to 3.0%, reflecting the low base effect created by the decline recorded in the September quarter last year.
The report will be released at 11.30am AEDT.
Business Insider will have all of the details once it hits the screens.