Morgan Stanley says Australia's next GDP report card could be another shocker

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Australia’s June quarter GDP report will be released next week, and Morgan Stanley’s Australian equity strategy team thinks the news is unlikely to be good.

Ahead of key GDP inputs that will be released over the next few days, its Growth Tracker is currently pointing to a paltry increase in real GDP of 0.2%, seeing annual growth slow to just 1.1%, the weakest level since the early 1990s recession.


Source: Morgan Stanley

“(This fits with) our view that Australia remains out-of-sync with growth recoveries in the US, Europe, Japan and Canada,” says Daniel Blake, Chris Nicol and Antony Conte, strategists at Morgan Stanley.

The trio say that growth in the first half of the year has been impacted by a combination of weak underlying conditions and unfavourable weather.

“This includes Cyclone Debbie, which contributed to our estimated 0.5 percentage point drag from net exports in Q2 as coal volumes were interrupted,” they say.

Offsetting the impact of weather disruptions on coal exports, Blake, Nicol and Conte say that residential construction and retail sales volumes are likely to support growth during the quarter.

However, while partially driven by one-off factors, they aren’t optimistic that the weakness in the first half of the year won’t continue in the quarters ahead.

“We see cyclical headwinds shifting — from first half weather disruptions and an ongoing resources capex unwind — towards a consumption squeeze amidst falling real wages, tighter credit conditions and a slowing housing cycle,” they say.

“While infrastructure and public-sector linked employment are looking stronger, we see the overall growth and unemployment outlook keeping the RBA on hold at 1.5% for longer than the market expects.”

We’ll find out soon enough as to whether Morgan Stanley is right when it comes to growth during the June quarter.

The ABS will release construction work done figures on Wednesday and business private capital expenditure data on Thursday.

Those will be followed early next week by business inventories, government expenditure and net-export data figures of the main GDP release on Wednesday, September 6.

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