- Australia looks set to record another solid increase in GDP in the September quarter.
- International trade will add 0.4 percentage points to Q3 GDP. Government demand is also expected to add 0.3 percentage points to growth.
- Both Westpac and RBC Capital Markets expect real GDP to increase by 0.6% for the quarter, down from 0.9% in the three months to June.
Australia looks set to record another solid increase in GDP in the September quarter following the release of international trade and government demand figures today.
According to the Australian Bureau of Statistics (ABS), international trade will add handsomely to GDP growth, rebounding after a slowdown in the June quarter of this year.
“In volume terms, imports falling and strong exports resulted in an expectation for international trade to contribute 0.4 percentage points to growth in the September quarter 2018 Gross Domestic Product,” the ABS said.
The contribution was larger than the 0.3 percentage point increase that had been expected by markets.
Including price movements seen during the quarter, exports rose by $3.390 billion after seasonal adjustments, helped in part by stronger LNG shipments. Imports rose by a smaller $688 million over the same period, seeing the quarterly trade surplus swell by $2.704 billion to $6.607 billion.
Reflecting the impact of higher commodity prices, the ABS said Australian terms of trade rose by 0.8% to 103.3 after seasonal adjustment. Export prices rose by 3% over the quarter, faster than the 2.2% lift in import prices.
Partially offsetting the impact of a larger trade surplus, the net primary income deficit grew by $1.162 billion to $16.911 billion during the quarter, seeing the current account deficit narrow to $10.688 billion, above the $10.2 billion level expected.
The primary income account measures income flows between residents and non-residents.
Along with trade, the ABS said that headline government expenditure and investment also increased, further boosting real GDP during the quarter.
Government consumption expenditure increased by $423 million, an outcome the ABS expects will add 0.1 percentage points to quarterly growth. Investment rose by a larger $749 million, and is tipped to boost GDP by 0.2 percentage points.
With all of the partial GDP inputs now in place, all that’s left is to see what contribution household consumption made to quarterly growth. That won’t be known until the GDP report is released tomorrow, although we already know that retail sales slowed sharply during the quarter.
Was that mirrored by spending on services? That’s the only key question that remains.
Regardless, today’s data points to the likelihood of another solid lift in GDP, albeit not to the same scale seen in the June quarter of this year, helping to offset a string of soft readings on retail spending, construction and private non-farm inventories over the past month.
“As confirmed in the data today, government spending and net exports are key growth drivers in the quarter,” says Andrew Hanlan, Senior Economist at Westpac Bank.
“Government spending is running at a brisk pace and has considerable further upside as governments continue to commit to additional investment projects, particularly transport infrastructure.”
Hanlan expects GDP to have grown by 0.6% during the quarter, with risks “evenly balanced” for his call.
“The key uncertainties are the the consumer and the drought,” he says.
While quarterly growth of 0.6% would be a step down from the levels seen in the prior two quarters, Su-Lin Ong, Head of Australian and New Zealand Fixed Income and Currency Strategy at RBC Capital Markets, says such a result is still decent.
“We expect some moderation in Q3 GDP from the 4% annualised pace in the first half of the year which was underpinned by a resurgence in residential construction and resilience in household consumption that we do not expect to continue,” she says.
“However, despite a likely moderation, growth will remain decent and above trend.”
Like Westpac, Ong expects real GDP to have increased by 0.6% during the quarter.
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