Australian GDP looks like it will be a show-stopper

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Australia’s March quarter GDP growth figure could be a show-stopper, with net exports expected to contribute an enormous 1.1 percentage points to growth for the quarter.

“In seasonally adjusted chain volume terms, the net goods and services surplus rose $4,731 million (60 per cent) to $12,611 million in the March quarter 2016,” said the ABS.

“This is expected to contribute 1.1 percentage points to growth in the March quarter 2016 volume measure of Gross Domestic Product.”

The figure was well ahead of expectations for a contribution of 0.7 percentage points, and could see some economists revise up their quarterly GDP forecasts as a consequence.

Before the release of today’s figure, the median economist forecast was looking for quarterly GDP growth of 0.6%, something that would have seen the year-on-year rate slow to 2.7%.

It now looks like risks to that figure are to the upside, particularly as an increase in government spending will also add around 0.2 percentage points to growth for the quarter.

Fitting with that sentiment, economists at CBA have wasted little time revising up its GDP forecast, predicting an enormous 1.1% quarterly growth figure, something that will see the the year-on-year rate accelerate to 3.2% if realised.

“Based on the economic information to date, we expect QI GDP growth to print at 1.1%. Such an outcome, revisions aside, would leave GDP 3.2% above year earlier levels,” said Gareth Aird, senior economist at the CBA.

“This would confirm that the pace of growth in the Australian economy continued to lift over QI after accelerating in the second half of 2015.”

Aird notes that consumption, dwelling investment, net exports, public spending and inventories will all make positive contributions to growth, helping to offset declining business investment as a result of the unwinding mining infrastructure boom.

Although a bullish forecast, he believes that there’s reason for caution, pointing out that GDP measured in income terms, not volumes, is likely to remain weak.

“Nominal GDP, which is the broadest measure of income in the economy, and is effectively the tax base, is likely to grow a little below the rate of output growth in QI,” says Aird.

“This is why the economy feels weaker than the headline GDP numbers imply. Output growth is simply not generating income growth the way it has previously because of falls in commodity prices and spare capacity in the economy.”

Following the lead provided by the CBA, economists at UBS Australia and TD Securities have also revised up their forecasts for GDP, predicting quarterly growth of 0.9% and 0.8% respectively.

While it now looks like the March quarter GDP figure will be enormous, the largest component of the national accounts — spending on services which makes up around 70% of private consumption — won’t be known until the GDP report is released.

As Annette Beacher, chief Asia-Pac macro strategist, points out, this alone equates to 25% of the economy.

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