The release of much weaker than expected construction work and private new capital expenditure data for the third quarter in the past two weeks has many economists now thinking Australian growth was flat or went backwards in the third quarter of 2016.
We’ll know at 11.30am AEDT Wednesday. But GDP data tells us where the economy was, not where it is now.
Perhaps that’s why the RBA and its governor Phil Lowe said on four separate occasions during November that the Australian economic outlook looks robust with the economy expected to grow close to potential in the coming quarters before accelerating above potential later in the forecast period.
So the RBA will be pleased with the latest data from Dun and Bradstreet’s Business Expectations survey released this morning.
The survey shows the Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, stands at 21.0 points for the March quarter of 2017, up from 17.0 points for the current quarter.
The encouraging news that Q3’s expected soft spot should prove transient is that both the current quarter’s expectations index and the interim Q1 2017 result are well above the 10-year average result.
In the case of Q1 2017, the result of 21 is 12.4 points above the 10-year average of 8.6 points. Also suggesting the economy is still in good shape is the fact that the reading of 21.0 leaves the index at its highest point since the December quarter of 2015, when it reached 21.8 points.
Stephen Koukoulas, economics adviser to Dun and Bradstreet, said:
“Business expectations will start 2017 on a positive note, with a broadly-based optimistic outlook on the economy. Expected sales of goods and services have plateaued at a high level, but expected profits, employment, capital expenditure and selling prices are all continuing to rise.”
Interestingly, in light of last week’s disappointing capex data, is that the index shows “plans for capital investment in Q1 2017 have increased, with the Capital Investment Expectations Index at 13.5 points”. That’s up from 7.9 points in the current quarter.
Summarising the outlook, Koukoulas said the level of business expectations “remains consistent with the economy growing at a 3 percent pace – perhaps a little higher.
“The generally positive outlook for the economy is one reason why the Reserve Bank is likely to leave interest rates on hold for the next few months and then judge whether the positive news on the economy has been sustained.”
The challenge for traders this week is whether the focus is on weakness in the past, or growth in the future. RBA governor Lowe, in his statement after tomorrow’s board meeting, is likely to push the positive outlook.