ANZ: Australia's next GDP report will show an economy in transition


Australia’s September quarter GDP report will be released early next month, and ANZ thinks it’ll be pretty good.

The bank is forecasting a quarterly increase in real GDP of 0.8%, seeing the annual rate lift to an above trend level of 3.1%.

While the strength in the latter is largely explained by the low base effect created by Australia’s shock negative GDP figure of the September quarter of last year, ANZ says the underlying detail is likely to show an economy undergoing a transition.

Here’s what it’s expecting.

Our forecasts suggest a continuation of the recent trends in the economy: the baton for growth being handed over from housing to investment. We expect housing construction to be soft, with a solid fall in renovation activity holding down the overall result. But nonresidential building should show a moderate rise of 1%, with further rises in the pipeline given the recent strength in building approvals.

The engineering construction work done numbers were distorted by the importation of a number of LNG platforms, but stripping this out, we estimate that private engineering was quite weak in the quarter, with a sharp step down in activity in Western Australia offsetting strength in New South Wales and Victoria.

We are forecasting a rise in machinery and equipment investment given solid capital imports. Net exports are likely to provide a meaningful addition to GDP with our numbers suggesting a contribution of 0.3ppts. Public sector spending should continue to show strength, with consumption supported by the ongoing roll-out of the National Disability Insurance Scheme and investment boosted by strong growth in infrastructure spending, particularly in New South Wales and Victoria.

Forecasting consumption is always a little difficult. Retail sales represent a declining proportion of overall consumption and show little correlation with overall spending. That said, we expect a relatively soft outcome with a rise of just 0.5%, although this follows a solid 0.7% rise in Q2. Retail sales were likely negatively impacted from the sticker-shock of sharply higher electricity prices in the quarter. More broadly though, consumer spending remains constrained by the combination of soft household income growth and high household debt and these factors are likely to weigh on growth over the medium term.

The far right column in the table from ANZ shows what contribution to real GDP it expects from individual inputs in Q3.

Source: ANZ

Of course, there’s still a plethora of actual inputs still to arrive, starting with private business capital expenditure on Thursday next week. That will be followed by other releases such as net exports, inventories, public finances ahead of the actual GDP release on Wednesday, December 6.

“We will review our forecast after the release of key capex, profits, inventories, balance of payments, and government spending data,” ANZ says.

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