What a difference 0.1 of a percent can make to perceptions of growth.
After some stronger than expected data over the past few days many economists had upgraded their economic forecasts to 0.7% or 0.8% and Aussie dollar traders were clearly punting on a strong number.
But the Australian Bureau of Statistics released a disappointing set of GDP data which showed growth in the third quarter of just 0.6% with year on year growth a somewhat anaemic 2.3%.
While the headline data is disappointing there is reason for hope within the internals of the GDP release.
Mining is still a big driver of growth and contributed 0.3% to GDP and we know from yesterday’s balance of payments that this helped net exports show a very solid 0.7% contribution (don’t try and add up the bits it doesn’t work that way). The government sector also contributed 1.3%.
One big negative though on the face of it was that inventories subtracted 0.5% and non-dwelling construction subtracted 1.1%.
The question which is unanswered or answerable at this point though is whether inventories falling is a good or a bad pointer to growth in the future. If the inventory rundown was voluntary (meaning a poor economic outlook as business didn’t replace stock) or involuntary (people bought more than expected causing inventories to drop which means a good economic outlook) only time will tell. But the break up of the 4 main categories of inventories within this GDP data showed that it was manufacturing and wholesale trade that fell while retail and mining rose.
So the fact that final consumption added 0.4% to growth suggests it might actually be a positive that inventories fell for long run growth as business rebuild their stocks and inventories.
The terms of trade which is a key driver of the RBA’s view on the Aussie dollar and its valuation fell 3.3% which we knew yesterday but in the context of a weaker than the market expected outcome it has gained more traction in the market and makes for a stronger case of RBA anti-Aussie dollar rhetoric.
Elsewhere in the data the ABS showed that The household savings rate was 11.1% in seasonally adjusted terms and 10.7% in trend terms.
All in all a disappointing set of data for the market and the Aussie dollar is back testing the 0.9070 region that we saw around the same time yesterday.
But CommSec Chief Economist Craig James noted: “The Reserve Bank had expected a ‘below trend’ economic growth rate for the quarter, so there are few surprises. While the Reserve Bank will retain its mild easing bias (leaning in favour of rate cuts), it is always forward-looking in setting policy and recent economic data has been more encouraging.”
So Australia’s run of 23 years without a recession continues.