The last of Australia’s GDP inputs have now been received, and it looks like it’s going to be a particularly weak performance from the economy in Q3.
In the wake of weak net export and government spending figures released on Tuesday, there’s now a very good chance that economic output, measured in volume terms, may have stalled or contracted in the three months to September.
Both will slice around 0.2 percentage points from real GDP, placing downside risks to the median economist forecast for quarterly growth of 0.2% that was made prior to the figures being released.
Now the economist notes are starting to flood in, and if there’s one common theme among them, it’s downgrades to their forecasts. Many now believe that Australia will record only its fourth quarter of negative growth in the past 25 years.
Here’s just a selection of what we’ve received so far:
Scott Haslem, UBS
Today’s data virtually cements a negative quarterly print tomorrow, the first since Q2 2011. Notwithstanding a healthy rise in the income side of the accounts from the terms of trade and better wage income, the surprisingly coordinated weakness across public capex, private capex and resource export volumes in Q3 likely presents too great a headwind for as yet unknown household consumption in Q3.
We therefore revise our Q3 GDP forecast from +0.2% to -0.2% q/q, suggesting the y/y pace growth will slow sharply from its above trend 3.3% for Q216 to just 2.1% in Q3, its slowest since mid-15.
Looking forward, the narrowing of the CAD to its best in 2.5 years on strongly rising terms of trade and likely Q4 rebound in public capex and resource export volumes should provide some comfort for policy makers that better data lies ahead.
Gareth Aird, CBA
We expect Q3 GDP growth to print at a very soft 0.1%. Such an outcome, revisions aside, would leave GDP 2.3% above year earlier levels which is below trend.
We expect the data to show a moderate increase in household consumption driven by services sector expenditure; a decent fall in dwelling investment which bucks the trend of solid quarterly growth over the past few years; a small lift in business investment driven by a big increase in farm investment and some statistical payback from a large asset sale in Q2 partially offset by a fall in mining related engineering construction; a negative contribution to growth from net exports due to a small increase in exports outflanked by a bigger lift in imports; and a negative contribution to growth from the public sector.
Nominal GDP, which is the broadest measure of income in the economy, and is effectively the tax base, should record a modest lift of 0.9% in Q3. Higher commodity prices is helping to offset weakness in wages growth. In annual terms, nominal GDP growth is forecast to ease a touch to 3.3%.
The ABS will be updating benchmarks and rebasing the real GDP data in the Q3 release which raises the probability of revisions to the data…throwing a spanner in the works.
Felicity Emmett, ANZ
After the release of key partial indicators, we expect Q3 GDP to have declined 0.1% in the quarter. This is a sharp deceleration from the 0.5% and 1.1% q/q gains in Q2 and Q1, and would see annual growth step down from 3.3% to 2.2%.
The weakness in GDP looks to be quite broadly based, although business investment is down particularly sharply, with the recent Construction Work Done and CAPEX reports suggesting it will take around 0.5ppt off GDP growth in the quarter. Some slowdown in GDP growth would be consistent with the apparent loss of momentum in the labour market, but we are surprised by the extent of the weakness evident in the numbers.
We do, however, expect the weakness to be relatively short-lived.
Tapas Strickland, NAB
Today’s data increases the likelihood of a negative Q3 GDP print tomorrow of -0.2% q/q, giving an annual print of +2.1% y/y. Moreover, risks are tilted to the downside, GDP possibly printing as low as -0.5% q/q, pending a possible inventory kick from a bumper grain harvest.
If a negative print eventuated, it would be the fourth individual negative quarterly print in the past 25 years.
With GDP likely lower than forecast, it may prompt the RBA to revise their growth outlook in the New Year, which could be the catalyst for markets to start pricing in the chance of the RBA cutting rates. NAB continues to expect the RBA will likely to cut rates in 2017.
Australia’s Q3 GDP report will be released on Wednesday, December 7. Creating uncertainty over the outcome, the largest piece of the GDP jigsaw puzzle — household services consumption –won’t be known until the report is released.
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