Australia’s latest economic report card will arrive on Wednesday with the release March quarter GDP.
While a lagging economic indicator, revealing what happened in the past, the GDP report has significant implications for unemployment, inflation, investment, household incomes and government tax receipts in the future.
After a strong start, the economy slowed abruptly in the second half of last year, culminating in Australia recording its first “per capita” recession since the mid-2000s, indicating that output per person declined for two consecutive quarters.
Reflecting the impact of the growth slowdown, Australian inflationary pressures have weakened further this year, moving further away from the RBA’s 2-3% target band. Recently, unemployment has also started to increase.
Put simply, the economy hasn’t been growing fast enough to lower unemployment, explaining why the RBA decided to cut Australia’s cash rate to a record-low level of 1.25% in June.
The early GDP indicators for the March quarter were universally for soft, pointing to another paltry increase in economic activity. However, following the release of all the partial indicators earlier this week, downside risks have since diminished, suggesting economic growth accelerated modestly at the start of 2019.
Here’s the state of play.
- In the December quarter, real GDP grew by 0.2% following a 0.3% increase in the three months to September. Real GDP measures changes in output by volumes only.
- The weakness largely reflected soft household consumption and a decline in dwelling investment during the quarter. The former accounts for just under 60% of GDP.
- Over the year, the economy grew by 2.3%, the weakest expansion since the end of 2017.
- With Australia’s population growing around 0.4% every three months, per capita GDP declined by 0.2% following a 0.1% drop in the September quarter. Put another away, without population growth, the economy would have hypothetically fallen into recession.
- Over the year, per capita GDP grew by just 0.7%, also the weakest increase since late 2017.
- Nominal GDP jumped by 1.2% during the quarter, leaving growth over the year at 5.5%.
- Nominal GDP measures changes in both volumes and prices over a given period, and is the broadest measure of income in the economy. That means its effectively the tax base, too. Importantly, it also reflects the world we live in.
- Turning to today’s update, the median economist forecast offered to Thomson Reuters looks for a quarterly increase in real GDP of 0.5%.
- Growth is likely to be supported by a modest increase in household consumption, solid government demand, a lift in business inventories and international trade. Reflecting the impact of Australia’s housing downturn, dwelling investment is expected to detract from growth. Business investment is also likely to make a small negative contribution to the quarterly figure.
- Adding an extra layer of uncertainty, the contribution to GDP from household consumption won’t be known until the national accounts are released. We already know retail sales volumes, accounting for a little under 30% of household consumption, declined slightly during the quarter. The question as to whether that weakness extended to services consumption will be answered today.
- Despite the modest quarterly lift expected, real GDP growth over the year is expected to slow to just 1.8%, the weakest increase since Q3 2009. That was at the tail-end of the GFC.
- Nominal GDP is expected to increase substantially faster than real GDP over both the quarter and year, primarily reflecting the impact of booming prices for Australia’s key commodity exports.
- Outside of the headline GDP figures, there’ll be plenty of interest on the household savings rate, a measure on the proportion of disposable income saved. It rose to 2.5% late last year, up marginally from the decade-low of 2.3% reported in the September quarter.
- Linked to the level of savings, compensation of employees, particularly in per capita terms, along with the change in real net national disposable income per capita, will also be of interest. The latter is regarded as the best measure of Australian living standards by the ABS.
The GDP report will arrive at 11.30am AEST.
Business Insider will have all of the details once it is released.
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