The last of Australia’s Q4 GDP inputs arrived today with the release of net exports and government spending figures.
Both will add to real GDP in the December quarter, making it a near certainty that Australia will avoid suffering its first technical recession in over 25 years — defined as two consecutive quarters of negative economic growth — when the ABS report is released tomorrow.
It would take a shuddering collapse in household spending on services for such an outcome to occur.
It almost certainly won’t.
Now that all of the GDP partials have now been released, many are busy tabulating what the final GDP figure is likely to be.
Gareth Aird, senior economist at the Commonwealth Bank, is one step ahead of the curve on that front, releasing his Q4 GDP preview in record quick time following the release of today’s economic data.
Here’s an excellent-yet-simple table from Aird looking at what components will add and subtract from quarterly GDP from an expenditure approach, along with a quick synopsis on why that’s likely to occur.
Nifty, right? And a useful guide to understanding the mechanics behind the release for those who don’t spend their spare time looking through economics textbooks.
Aird, like the broader market, expects real GDP to rebound strongly after the shock weather-disrupted 0.5% contraction of the September quarter.
“Based on the economic information to date, we expect Q4 GDP growth to print at 0.7%. If correct, the figures will show that the Q3 weather-related contraction in output was a temporary aberration,” he says.
“Our forecasts have annual growth lifting a little to 1.9%. The high probability of an upward revision to Q3 means that the risk to our Q4 quarterly call is to the downside.”
If the Q3 GDP contraction is revised higher, it will increase the chance that the Q4 rebound may undershoot, in other words.
Outside of real volume-measured GDP, Aird says that nominal GDP — taking into account price movements seen during the quarter — will almost certainly grow faster thanks to booming commodity prices for Australian commodity exports.
“We have forecast a quarterly increase of 3.0% which would take annual growth to its strongest pace in five years,” he says.
“The rise in commodity prices is also providing a boost to the public coffers courtesy of higher company tax receipts and a lift in royalties.”
That’s not only good news for the government as it attempts to narrow Australia’s budget deficit, but also for Australian households should it persist beyond the short-term.
“We suspect that it will take a few more quarters of firmer commodity prices for the benefits to spill-over to the household sector in the form of higher salaries,” says Aird.
Australia’s GDP report will be released at 11.30am AEDT on Wednesday, March 1.