Data out this morning has led market economists such as UBS, Westpac and ANZ to highlight the risk of a ‘downside surprise’ when Australia’s Q4 GDP growth rate is released at 11.30 am Wednesday.
Key to the downside bias to what had previously been decent growth expectations of 0.6% to 0.7%, according to Scott Haslem of UBS, (who was near the bottom of expectations at 0.5%) is this:
Private non-farm inventories fell a much weaker than expected 0.8% q/q in Q4 (UBS: +0.7%, mkt: +0.1%). After Q3’s +1.2%, this means stocks will drag significantly on Q4 growth, -0.8%pt, its worst in over 3 years.
That means Haslem is holding onto his 0.5% forecast for GDP but he has “grave fears it’s weaker.”
Andrew Hanlan at Westpac agrees noting, “The Business Indicator survey suggests that the risks to our forecast (0.6%) are tilted to the downside.”
The RBA has already cut once since the national accounts these partial indicators feed into were closed off.
But the release of data in the past month highlights that Australian business is struggling and that the Australian economy is a one trick pony of housing and house prices.
That may stay the RBA’s hand tomorrow while it and APRA enforce lending regulations. But this is an economy in need of at least one cut and probably more.
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