Australia will receive its Q2 GDP report today, providing a snapshot of how the economy was faring several months ago.
While a lagging indicator, revealing what happened in the past, the GDP report is still significant given it has implications for unemployment, inflation, investment, household incomes and government tax receipts in the future.
As such, it’s closely watched by the Reserve Bank of Australia (RBA), and therefore financial markets.
Here’s the state of play.
- In the March quarter, real GDP grew by 1%, the fastest increase since late 2011.
- Stronger growth in exports contributed half of the quarterly increase. Along with firm government demand, this masked a sharp slowdown in household consumption.
- The quarterly surge saw year-on-year growth jump to 3.1%, the largest gain since the middle of 2016 and above the 2.75% level many regard as being Australia’s potential growth rate.
- In per capita terms, real GDP grew by 1.5% over the year, faster than the 0.7% increase reported in the year to December.
- Including both volumes and price movements, nominal GDP expanded 2.2% over the quarter, and by 3.9% over the year.
- Nominal GDP is the broadest measure of income in the economy, and therefore has implications for government tax revenues.
- Today, economists are forecasting a moderation in economic growth.
- The median economist forecast looks for a quarterly increase in real GDP of 0.7%, seeing year-on-year growth slow to 2.8% without any revisions to prior data. That would be slightly below the 3% pace forecast by the RBA last month.
- Earlier this week, the RBA said it expects GDP grew at an above-trend rate in the first half of the year.
- A rebound in household consumption is expected to drive the quarterly increase.
- We already know that retail sales volumes surged by 1.2%, a strong result following weakness earlier in the year. The question is whether that extended to spending on services, accounting for a significantly larger proportion of household consumption at around 70%. We won’t know that until the report is released.
- Linked to household spending, watch for any changes in Australia’s household savings ratio, measuring the proportion of income being saved. It currently sits at just 2.1%, the lowest level since December 2007.
- In recent years, households have saved less in order to sustain spending levels during a time when household income growth has been weak.
- Along with household consumption, government demand, dwelling investment and trade are all expected to add modestly to quarterly GDP. Business investment is expected to make no contribution while inventories are tipped to drag.
- Nominal GDP is likely to grow faster than real GDP as modest growth in employee wages and business profits offsets small decline in Australia’s terms of trade.
- The CBA’s economics team is forecasting a quarterly gain of 1.1%, and 4.9% over the year.
- For those interested in productivity levels, keep an eye on real GDP measured in per capita and hours worked terms.
- Changes in per capita real net national disposable income will also be of interest given it’s deemed to be the best indicator of national living standards. It jumped 1.5% in the March quarter, leaving it up 0.9% over the year.
The GDP report will be released at 11.30am AEDT.
Business Insider will have all of the details once it hits the screens.
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