Australian Q3 GDP, a preview: Lift in momentum, but expansion uneven - Westpac

According to Andrew Hanlan, Research Analyst at Westpac, Australian economy gained momentum in 2017 however the expansion is uneven with weakness centred on consumers.

Key Quotes

“The improvement in domestic conditions, which mirrors the strengthening of global growth, reflects a greatly diminished drag from the mining investment wind-down; the boost to national income from recent higher commodity prices; a hiring burst, correcting for earlier excessive weakness; an upswing in public investment; and a lift in private non-mining construction work; while exports of resources and of services are also positives.”

“For Q3, we expect real GDP growth of 0.8%, with the arithmetic being: domestic demand +0.4%; inventories +0.2ppt; and net exports +0.2ppt.”

“Annual real GDP growth jumps to 3.1%, with a -0.4% for Q3 2016 dropping out of the calculation (a period disrupted by the July Federal election).”

“Labour market trends highlight the improvement in economic conditions. Hours worked grew by 0.6% in Q3. Annual growth is 2.8% currently, up from only 0.8% for 2016, to be in line with the 2015 outcome, which was the strongest since the start of 2011.”

“National income, nominal GDP, grew by an above trend 6.3% in the year to June, boosted by earlier higher commodity prices. For Q3, we expect nominal GDP growth to be 0.9%qtr, 6.4%yr. The terms of trade declined by 0.7% in the period, we estimate, and the overall GDP deflator is forecast to increase by only 0.1%, following a 0.9% decline in Q2.”

“Looking forward to 2018, we expect real GDP growth to slow to a sub-trend 2.5%, with trend at 2.75%, constrained by: a home building downturn, including negative spill-over effects to employment and consumer spending; persistent weak wages growth; a slowing in China post the National Congress; and a decline in commodity prices from current elevated levels, a negative for national income.”