Even though most of the partial indicators that drive the release of GDP are usually known before the release itself there is often still a wide dispersion of forecasts around the actual number when it comes out each quarter.
That’s the situation Australia’s economic fraternity finds itself in again with a solid indication that Q2 GDP, to be released tomorrow morning at 11.30am, might actually print a negative growth rate.
That’s been the view of UBS economists Scott Haslem and George Tharenou who took the almost heretical step of raising that possibility last week after the Capex data was released.
That was before we got confirmation yesterday of weaker than expected company profits and inventories. It also predated the release this morning of the much bigger than expected current account deficit for the second quarter of $19 billion and the consequent drag that net exports will have on GDP growth in Q2 2015.
The UBS team is not alone. Here’s Morgan Stanley in a note to clients last Friday:
Our tracking estimate for 2Q GDP points to a decline of -0.1% qoq, with a negative surprise from machinery and equipment today,as well as dwellings investment yesterday, partly offset by some lumpy work in resources-engineering coming through (likely LNGrelated).While a weather-related drag of around -0.4ppt from net exports will be part of the story, we expect the weak profile of domestic demand will challenge the consensus view on Australia’s improving momentum.
We’re pretty sure we know Haslem, Tharenou, and the Morgan Stanley team are going to say about the impact of today’s data on the growth outlook. So we asked AMP’s chief economist Shane Oliver for his take on the outlook for the GDP release tomorrow morning.
Oliver told Business Insider that the result was much worse than that flagged by the monthly trade releases. As a result, “the resultant net exports detraction from June quarter GDP growth of 0.6% is also worse than expected. Given this and an expected 0.25% detraction from growth from inventories there is now a very high risk that June quarter GDP data to be released tomorrow will show that the economy has contracted.”
Indeed there is.
Oliver added however that:
The poor current account/trade figures highlight just how tough the situation is that Australia has now found itself. My view remains that the RBA will have to cut the cash rate again (albeit that’s very unlikely today) and the $A is on its way in the $US0.60s.
Starting points are important. So, whatever side of the growth divide you stand on it seems likely that Australia’s economy struggled in the second quarter of 2015 and the economic outlook is, as result, is more grim than many imagined.