The last of Australia’s June GDP inputs have now come and gone, and economists are now busy tweaking their forecasts.
After a less-than-stellar start to the year, the June quarter is suddenly looking good following the release of government expenditure and net exports data today.
Here’s a selection of notes already received on what economists are expecting.
Gareth Aird, Commonwealth Bank (+0.9% QQ, +2% YY)
We expect to see a decent set of numbers. Based on the economic information to date, we have forecast Q2 GDP at +0.9%. If correct, annual growth will lift to 2.0%.
The data is likely to show a solid lift in household consumption, a modest increase in residential construction after the weather-disrupted fall in Q1, a solid contribution to growth from business investment, a decent lift in public consumption and a strong rise in public capex, a modest positive contribution to growth from net exports and a solid negative contribution to growth from inventories.
We think the risks to our call are to the upside.
Tapas Strickland, National Australia Bank (+0.9% QQ)
Better-than-expected net exports and government spending figures means Q2 GDP is likely to bounce strongly tomorrow after last quarter’s weather-affected read.
Combining today’s data points to a Q2 GDP print for Wednesday of +0.9% quarter-on-quarter (QQ) with possible slight upside risks. A mechanical calculation of the partial data to the expenditure-side could produce a GDP(E) print as high as 1.0% QQ and a GDP(I) print as high as 1.3% QQ, so risks are tilted slightly to the upside.
Our GDP forecast of +0.9% QQ is slightly higher than the current market consensus of +0.8% QQ, though the consensus could be upgraded in the next few hours.
Felicity Emmett, ANZ (+0.7% QQ, +1.6% YY)
We expect Q2 GDP to have risen 0.7% QQ. This follows a modest rise of just 0.3% QQ in Q1 and would leave annual growth at an anaemic 1.6%. That said, there are a number of temporary factors that held down growth in the first half and surveyed business conditions suggest that the economy is actually in better shape than these numbers suggest. We expect a stronger second half.
Of importance in tomorrow’s release will be the household consumption and wages numbers. While retail sales volumes rose strongly in the quarter, it will be interesting to see whether this reflected overall strength in consumption or if it came at the expense of services spending. On wages, yesterday’s business indicators release showed that the wages bill rose a solid 1.2% in Q2, but this largely reflects the strength in employment in the quarter. Of more interest will be the wage rate in tomorrow’s report, which we expect will show only modest growth.
Tom Kennedy, JP Morgan (+0.6%, +1.6% YY)
Australia’s June quarter net trade and real government spending numbers were firmer than expected and, on balance, offset yesterday’s weaker inventory data. As a result, we are lifting our forecast for tomorrow’s real GDP print by one-tenth to 0.6% quarter-on-quarter. If realised, this would see the annual rate slow to 1.6% year-on-year, below the RBA’s forecast of 1.75%.
The big unknown for tomorrow’s GDP print remains the household sector. Retail sales surprisingly accelerated in Q2 and household income also perked up, but higher mortgage rates reduce the ‘disposable’ component left over for consumption in other areas, and SME profits also are likely to have softened. The overall consumption and GDP result therefore is likely to depend on the household sector’s willingness to push the savings rate lower again, when we are already quite close to the lower bound required to keep adding equity to the housing stock.
Su-Lin Ong, RBC Capital Markets (+0.9% QQ, +1.9% YY)
While Q2 GDP follows a weak Q1 and annualised growth for H1 will likely have remained sub-trend at around 2.5%, we make a few observations.
Firstly, the composition of growth is likely to have been encouraging, underpinned by household consumption, net exports, and some private capex as well as public expenditure.
Secondly, while the quarterly data are choppy, the firmer growth momentum in the quarter is consistent with stronger labour market data and business conditions.
And thirdly, for the first time in a long while, there might be some upside to the RBA’s near-term growth forecasts, which they recently revised down. This would be consistent with the generally more optimistic tone from RBA communication for much of 2017, which we expect to be repeated this afternoon following its September board meeting.