The latest report card on the health of the Australian economy will arrive later this morning with the release of Q3 GDP from the ABS.
It’s not likely to be pretty.
Following the release of disappointing data inputs in recent weeks, there’s a strong possibility that real GDP may have contracted during the quarter, an outcome that has not been seen in Australia since early 2011.
Here’s the state of play:
- In the June quarter of 2016, real GDP — that measured in volume terms — grew by 0.5%, leaving the year-on-year increase at 3.3%.
- Not only was the year-on-year rate the fastest seen in four years, it took Australia’s run without experiencing a technical recession — defined as two consecutive quarters of negative economic growth — to 25 years.
- Nominal GDP — taking into account price movements — rose by 1.3% over the quarter, leaving the year-on-year increase at 3.4%. The quarterly gain was the largest in percentage terms since Q4 2013.
- Today, both real and nominal GDP are expected to weaken, the former by a substantial degree.
- Economists polled by Bloomberg forecast real GDP to contract by 0.1%, seeing the year-on-year rate decelerate from 3.3% to 2.2%.
- If correct, and excluding the possibility of revisions, it will mark the first quarterly contraction since devastating floods struck southeast Queensland in early 2011. There have only been two other negative growth quarters seen over the past 25 yeas.
- The year-on-year increase would also be the slowest since Q2 2015.
- Modest growth in household consumption expenditure, the largest component within the Australian economy, along with a boost from non-farm inventories, is likely to be offset by weak government spending, dwelling investment, business capital expenditure and net exports.
- Adding to uncertainty, the main component within household consumption expenditure — services (~70%) — won’t be revealed until the GDP report is released.
- According to CBA’s economics team, nominal GDP will likely increase by 0.9% during the quarter thanks to higher commodity prices offsetting weakness in wage growth.
- If correct, and again excluding the possibility of revisions, that will see the year-on-year increase slow fractionally to 3.3%.
- The CBA says nominal GDP is effectively Australia’s tax base, so will be influential on the federal budget.
- Thanks to the boost in Australia’s key commodity export prices, terms of trade — the value of exports divided by the value of imports — will increase by 4.5%, following a 2.3% gain in the prior quarter.
- Adding to the risk of revisions to prior data, the ABS will be updating benchmarks and rebasing the real GDP data in the release.
The ABS will release the report at 11.30am AEDT.
Business Insider will have full analysis as soon as it drops.