Australia’s December quarter GDP report will be released later today.
While a lagging economic indicator, revealing what happened in the past, it still has significant implications for unemployment, inflation, investment, household incomes and government tax receipts in the future.
After booming in the first half of the year, growth slowed sharply in the September quarter, contributing the RBA abandoning its previously held view that the next move in Australia’s cash rate was likely to be up rather than down. Growth is expected to remain weak, or slow even further, in the December quarter.
At a time when concerns about the impact of falling home prices on household spending are elevated, and with the RBA describing that mix as the “main domestic uncertainty”, household consumption expenditure, the largest part of the economy, along with readings on household savings and employee compensation, will likely attract plenty of attention given they will feed into expectations for spending and broader economic growth in quarters ahead.
Ahead of Australia’s federal budget in April, nominal GDP will also be of interest given it is the broadest measure of income in the economy, and is effectively the tax base.
Here’s the state of play.
- In the September quarter, GDP grew by 0.3% in seasonally adjusted chain volume terms, missing forecasts for an increase of 0.6%.
- Household consumption — the largest part of the economy at over 50% — grew by a paltry 0.3%, contributing just 0.2 percentage points (ppts) to GDP for the quarter.
- The big quarterly miss saw growth from a year earlier slow to 2.8%, down sharply from the downwardly-revised 3.1% pace reported in the year to June.
- Today, growth is tipped to remain sluggish, or decelerate even further.
- According to latest forecasts, the median economist view looks for a quarterly increase of 0.3%, a result that will see growth slow to 2.5% over the year without revisions to prior data.
- Australia’s trend growth rate is seen to be around 2.75% per annum. That’s the level where the economy grows fast enough to keep inflation and unemployment steady.
- Only last month, the RBA forecast that GDP would grow by 2.8% in the year to December. That forecast looks unlikely to be achieved, creating renewed uncertainty on the outlook for inflation and unemployment.
- Over the quarter, growth is expected to have been supported by modest household consumption, a small increase in business investment and strong government demand, offset by weaker dwelling investment and a decline in business inventories and net exports.
- Three of Australia’s big four banks — possessing a treasure trove of data on the economy — are forecasting growth of just 0.2%. The NAB, at 0.3%, is the most optimistic forecaster of the major banks.
- With Australia’s population growing at around 0.4% per quarter, a consensus quarterly growth rate will see Australia record its first per capita recession since the early 2000s without revisions to prior data. In the September quarter, per capita GDP declined by 0.1%.
- Per capita GDP measures output per person. Sluggish productivity growth has been a feature of the Australian economy since the GFC, contributing to weak growth in household incomes.
- Given uncertainty about the impact of falling home prices on household behaviour, there will be plenty of interest on the household savings rate, a measure on the proportion of disposable income saved.
- It fell to 2.4% in the September quarter, the lowest level since the GFC. Any lift in savings in the December quarter will weigh on household consumption, and will be seen as clear evidence that falling home prices is creating a negative wealth effect.
- Linked to savings, compensation of employees, particularly in per capita terms, along with the change in real net national disposable income per capita, will garner plenty of attention given the links to household finances.
- In the year to September, real net national disposable income per capita grew by just 1.3%, and actually declined by 0.3% during the quarter. This is regarded as the best measure of Australian living standards.
- Given the implications for government revenues, and potentially disposable income levels, nominal GDP growth will also be of interest. In contrast to real GDP that is measured in volumes, this looks at changes in volumes and prices over a given period.
- As mentioned in the introduction, nominal GDP the broadest measure of income in the economy, and is effectively the tax base.
- Over both the quarter and year, it will likely grow substantially faster than real GDP, primarily as a result of firmer commodity prices and modest growth in wages.
- Stronger nominal GDP growth has helped Australia’s budget position improve in recent years, and has provided politicians with some fiscal firepower to support the economy, should they choose to deploy it.
The GDP report will arrive at 11.30am AEDT.
Business Insider will have all of the details once it is released.
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