UBS thinks Australia’s September quarter GDP report may eventually lead to the Reserve Bank of Australia (RBA) having to downgrade its forecasts for economic growth in the years ahead, potentially delaying the start of interest rate increases as a consequence.
George Tharenou, Chief Economist at UBS Australia, explains the rationale behind the call:
In line with our long-held view, Q3 real GDP bounced on a ‘base effect’, but was below consensus and the RBA at 0.6% & 2.8% year-on-year. Indeed looking ahead, despite booming public capex and better global growth lifting business conditions, we reiterate Q3 is close to a peak in growth given a ‘top’ of housing activity and flat [houses] prices amid the lagged impact of macroprudential tightening, which coupled with weak wages, implies slow consumption.
Overall, parts of GDP were positive, but this is still not hawkish for the RBA given their forecast of a 3.25% boom ahead will likely be downgraded again. Hence, we still see the RBA on hold until November 2018, but with the risk of a later move.
According to the RBA’s latest economic forecasts, it sees real GDP growth averaging 3% in calendar year 2018 before accelerating to 3.25% in 2019.
Australia’s trend GDP growth pace – where unemployment and inflation are generally steady — is current deemed by most to be around 2.75% per annum.