Australia's latest round of economic growth indicators were steady if not spectacular

(VCG via Getty Images)
  • The ABS has released quarterly data on three GDP inputs ahead of this Wednesday’s Q2 GDP report.
  • Q2 growth in company profits and inventories beat market forecasts, while the salary and wages component also climbed in Q2.
  • Although steady, the results are unlikely to result in any sharp upward revisions to Q2 GDP forecasts.

Australia just got another update on what this Wednesday’s Q2 GDP print might look like — and the results were solid if not spectacular.

Data from the ABS showed that company profits and quarterly inventories both came in ahead of market expectations.

Inventories rose by 0.6% in seasonally adjusted terms for the three months to June, beating forecasts for a 0.2% increase.

And company gross operating profits rose by 2% q/q in seasonally adjusted terms, above the median forecast of 1.3%.

The median forecast for Q2 GDP is for quarterly growth of 0.7%, leaving annual growth at 2.8%.

This morning results “suggest risks to our Q2 GDP growth forecast of 0.6% q/q, 2.7% y/y are tilted to the upside”, said Westpac economist Andrew Hanlan.

With the headline data for company profits, “mining was the key surprise, up 4.4%, whereas commodity prices pointed to a more modest lift,” Hanlan said.

“Non-mining profits were uninspiring, at +0.6% against Westpac expectations of 1.0%.”

CBA economist Kristina Clifton pointed out that professional business services was the only sector to record a fall in profit growth (down 1.7%).

“Over the year the strongest performing sectors are mining (21.9%), wholesale trade (16.9%), utilities (15.7%) and retail trade (15.2%),” Clifton said.

Commonwealth Bank

Commonwealth Bank’s forecast for Q2 GDP remains in line with consensus forecasts at 0.7%, pending tomorrow’s update on Austarlia’s current account balance.

The quarterly print for wages and salaries grew by 1.2% in the quarter — up from 0.8% in March — leaving annual growth at 4.5% in seasonally adjusted terms.

The annual print for wages and salaries was below the long-term average of 5.5%.

Unlike the ABS’ Wage Price Index, the salaries & wages component of GDP is calculated with reference to overall jobs growth, not underlying wage growth.

The input data on quarterly economic growth was accompanied by a soft print for retail sales, which had flat growth in July (+0.3% forecast).

The Australian dollar fell as low as 0.7170 US cents immediately following the ABS releases, but has since climbed back slightly.

According to Westpac, the inventories print of 0.6% won’t stop it detracting from GDP growth on Wednesday, but the fall will be smaller than expected.

“Inventories will subtract 0.1% from activity in the period, a slightly smaller drag than we anticipated (-0.2%),” Hanlan said.

“By way of context, in the March quarter, there was a run-up of wholesale inventories, increasing by 3.3%,” Hanlan noted.

“A repeat of that was unlikely and we saw the risk of a partial reversal – in the event, they advanced at a much slower rate in Q2, up 1.1%.”

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