An obscure economic indicator released today could have big implications for Australian economic growth

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  • Australia received data on trade prices for the June quarter today. It generated little fanfare.
  • JP Morgan says that despite the lack of interest, it could have big implications for Australian GDP.
  • It estimates trade could add up to 0.3 percentage points to quarterly economic growth.

Australia received information on trade prices for the June quarter earlier today.

The release came and went with little fanfare, generating barely any interest from financial markets. Actually, that’s being far too kind. It basically generated no interest whatsoever.

Perhaps it should have.

According to JP Morgan, it could have a big influence on Australian economic growth in the June quarter.

Tom Kennedy, Economist at JP Morgan, explains (our emphasis in bold):

Australia’s trade price indexes were stronger than forecast in Q2, with the pass-through from recent FX deprecation to both local currency import and export prices larger than we had expected. Export prices rose close to 2% over the quarter… [while] import prices also surprised to the upside, rising 3%, supported by petroleum imports.

Combining today’s [data] with the monthly trade numbers suggests net exports are on track to deliver between 0.2 to 0.3 percentage boost to real GDP growth in Q2, a similar sized impulse to that recorded at the start of the year. The mechanics of the contribution are somewhat different, however, with most of the strength the result of weak import volumes, rather than export strength.

These tracking estimates are based on limited data given the June trade report is yet to be released and the data are susceptible to large near-term revisions. We will revisit this forecast when the full set of monthly trade data is available.

So while we’re still yet to receive all data for the quarter with the June trade report released next week, based on the figures already received, trade could add as much as 0.3 percentage points to quarterly GDP.

That’s a non-insignificant amount, especially as net exports added a chunky 0.4 percentage points to real GDP in the March quarter, helping to boost total growth by 1%, the largest increase since late 2011.

Should it boost growth as much as JP Morgan is guestimating, it suggests another strong GDP result could be on the way, especially given a modest improvement in retail sales in recent months, boding well on the outlook for household consumption, the largest part of the Australian economy.

We’ll get further information on that front on Friday next week when Australia’s June retail sales are released.

While most GDP partial indicators won’t start rolling in until late August and early September, the early signs are looking promising.

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