Australia will receive its latest economic report card today with the release of March quarter GDP.
After a sharp slowdown in the final three months of 2017, partially reflecting temporary disruptions to Australian commodity exports, growth is expected to accelerate sharply in the March quarter, boosted by household consumption, government demand, stronger exports and a lift in business inventories.
While the GDP report looks backwards, telling you what happened as far back as five months ago, it’s still one of the most important data releases in Australia, particularly when it comes to the outlook for unemployment, tax revenues, inflation and, courtesy of the latter, interest rate settings from the Reserve Bank of Australia (RBA).
Adding extra intrigue to the release, we still don’t know how household consumption — the largest part of the Australian economy — fared during the quarter.
That means that the report, like the others before it, carries the potential to surprise in either direction.
Here’s the state of play.
- In the December quarter, GDP grew 0.4% in seasonally adjusted chain-volume terms (also known as real terms), below the 0.7% increase seen in the previous quarter.
- The sharp deceleration saw year-on-year growth slow to 2.4% from 2.9%, below the 2.75% level many regard as being Australia’s potential growth rate.
- International trade and construction dragged heavily on growth, offsetting strong contributions from household consumption and government spending and investment.
- In per capita terms, real GDP was flat during the quarter and up 0.8% over the year.
- Including both volumes and price movements, nominal GDP grew by 0.8% for the quarter, leaving the increase on a year earlier at 3.5%.
- Today, economists expect real GDP to have accelerated sharply in the March quarter.
- Most forecasts look for a quarterly increase of 0.9%, an outcome that is expected to see year-on-year growth lift to 2.8%, around the same level forecast by the RBA.
- Most economists believe that if there are risks to the quarterly figure, they are to the upside.
- Growth is likely to be fuelled by international trade, household consumption, government demand, business inventories as well as small contributions from dwelling and business investment.
- While we won’t receive the household consumption figure until the report is released, it’s expected to add modestly to real GDP.
- We already know that retail sales volumes rose by just 0.2% over the quarter, a weak result after a strong end to 2017. The question is whether that extended to spending on services, accounting for a significantly larger proportion of household consumption at around 70%. The likely answer is probably not, but you never know.
- Linked to household spending, watch for any changes in Australia’s household savings ratio, measuring the proportion of income being saved.
- It currently sits at just 2.7%, well below the levels seen in the immediate aftermath of the GFC.
- Over this period, households have saved less in order to sustain spending levels at a time when household income growth has been weak.
- Nominal GDP is likely to grow significantly faster than real GDP, boosted by firmer commodity prices and company profits, as well as modest growth in household incomes.
- Nominal GDP is the broadest measure of income in the economy, and therefore has implications for government tax revenues.
- For those interested in productivity levels, keep an eye on real GDP measured in per capita and hours worked terms.
- Changes in real net national disposable income will also be of interest given it’s deemed to be the best indicator of national living standards.
- It was unchanged in the December quarter, leaving it up 1.5% over the year. In per capita terms, it actually fell over the quarter.
The GDP report will be released at 11.30am AEDT.
Business Insider will have all of the details once it hits the screens.
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