The release of Australia’s Q3 GDP data was expected to be a weak result.
But the fact that the -0.5% print for growth was well below consensus, the worst quarterly growth outcome since the GFC, and at the lower end of even the most pessimistic economist’s expectation was disquieting.
But the verdict from Australia’s financial economics fraternity appears to be that Q3’s weak print was a one off and the economy will bounce back in Q4 and into 2017.
Westpac’s chief economist Bill Evans said the result “significantly overstates the fragility of the Australian economy” noting “there were a number of one-offs which coincided to produce this result”.
Evans’ notion, and that of his fellow financial markets economists, is backed up by the bank’s latest survey of small business across Australia.
The latest Westpac Melbourne Institute SME Index, which examines the economic health of Australian small and medium sized enterprises, shows a big improvement in SME business confidence with a print in the current quarter of 100.7 from Q3 2016’s 95.6.
The pickup in sentiment was not universally felt across the states Westpac surveyed. But it did tend to mirror the state-based outcomes for Q3 GDP released yesterday.
The SME index showed some solid gains in New South Wales (+11.2% to 110.4), Queensland (+14.4% to 100.2), and South Australia (+37.1% to 87.6).
All three states showed very slight growth of 0.1% in Q3, according to the ABS Q3 data released yesterday.
But Victoria and Western Australian growth went backwards in Q3, the GDP data showed. That might help explain the underperformance of these states in the SME index.
Westpac said “both Victoria (83.7) and Western Australia (87.4) saw a dip, attributed to declines in business activity and profits”.
But the overall lift in the survey supports the interim Dun and Bradstreet Business Expectations survey for Q1 2017, released earlier this week, which showed business is confident and investing as we head into the new year.
Australia’s small business sector plays an important part in the economy and Westpac senior economist Mathew Hassan said “the lift in confidence over the last quarter could reflect a progression in real business activity, which is evident in the increased level of investment spending by businesses.
“The survey detail suggests the positive business sentiment is related to forward planning.”
The behavioural economist in me says something has to be going right in these businesses for them to have turned so much more positive this quarter.
It suggests the flat spot of the third quarter has already passed.
That’s important, as Julie Rynski, Westpac’s general manager of SME Business Bank, highlighted.
“SMEs are the engine room of the Australian economy, contributing a little over half of private sector economic activity. The development of this sector plays a huge part in the overall health of our nation,” Rynski said.