The list of negative developments is growing for Australia's economy

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  • Australia’s economy lost a lot of momentum in the September quarter last year.
  • Most economic indicators, including those released this week, point to further sluggish growth.
  • ANZ Bank says that while positives surrounding the economy remain, the “list of negative developments is growing”.
  • The RBA will release updated economic forecasts in early February. It’s views on GDP growth are likely to be lowered.

After a pronounced slowdown in the September quarter of last year, most Australian economic data indicators, including those released this week, have offered little in the way of good news.

Building approvals collapsed in November, falling to the lowest level in five years. All three PMI reports released by the Ai Group showed conditions in the services sector improved at a slower pace in December while those for the manufacturing and construction sectors actually deteriorated.

The construction PMI, particularly for the residential sector, offered an incredibly bleak picture on the outlook for building activity in early 2019.

ANZ job ads were also flat in December, with annual growth likely to turn negative in January in the absence of an unexpected, and unlikely, surge in new advertisements in January.

While there were pockets of good news — retail sales were fairly good in November, although there’s heightened uncertainty as to whether that will continue in December, while Australia recorded another healthy trade surplus over the same period, continuing the strong run seen of late.

Job vacancies, as measured by the ABS, also rose to the highest level on record.

While the latter points to a continuation of solid hiring in the period ahead, ANZ’s Australian economics team believe even with the positive outlook for hiring, from a broader perspective, the prospects for the economy, at least in the near-term, appear to be dimming.

“The outlook is more uncertain,” says Felicity Emmett, Senior Economist at ANZ.

“The Ai Group surveys for December show that business conditions have continued to trend lower and suggest another downtick in the NAB survey when it is published later this month. The decline in business conditions comes alongside the slide in global PMIs, with the US ISM falling sharply and the China PMI moving into contractionary territory.

“While Australian business conditions are currently still solidly above long run average levels, we will be watching these surveys particularly closely over coming months. A further deterioration would challenge our view [for] further labour market improvement.”

Given the recent signals, Emmett says the risk, as things currently stand, is that economic growth may undershoot the RBA’s lofty expectations.

“All of [this] provides a challenge for those forecasting above-trend growth in 2019, such as ourselves and, more particularly, the RBA,” she says.

“There are positives for the economy, such as rising AUD commodity prices and strong government spending, but the list of negative developments is growing.”

The RBA will release updated economic forecasts early next month in its quarterly statement on monetary policy. In early November last year, the bank forecast GDP growth in 2018 of 3.5% before easing to 3.25% this year and next.

Following a big deceleration in the economy in the September quarter, it’s highly likely there’ll be downgrades when the next round of forecasts are released.

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