SYDNEY: Australia’s Q3 GDP rose by 0.6% q-o-q, 2.8% y-o-y, below consensus (0.7% q-o-q) and Nomura’s forecast (0.8% q-o-q), but in line with RBA expectations, points out the research team at Nomura.
“Relative to our own forecast, private consumption (0.1% q-o-q) was very soft, and some of the industry-based growth numbers printed below those suggested by partial data earlier in the week.”
“Our broad outlook remains for respectable, trend-like growth, with some encouraging signs, but with headwinds from a weary consumer and lower dwelling construction. These trends were certainly evident in today’s release. On the positives, we note an encouraging rise in business investment, rising export volumes, higher capital goods imports and growth in Western Australia. Against this, GDP per hour worked and GDP per capita were weak (0.0% q-o-q and 0.2% q-o-q, respectively), while consumer spending was very soft, particularly in discretionary areas. Moreover, the household savings rate is now 3.2%, from 4.6% in the prior national accounts (released with Q2 data), so the consumer has less of a buffer to support spending in a low-wage environment.”
“On wages and prices, today’s data are certainly consistent with our view that these will remain subdued (due to cyclical and structural forces). We note that the private consumption deflator rose by only 0.1% q-o-q (and 1.1% y-o-y) while average compensation per employee rose by only 0.3% q-o-q.”
“In terms of our strategy, we continue to expect trend-like growth, low inflation and a patient central bank, so we continue to forecast no RBA rate hike by end-2018 – by which point our US colleagues forecast the Fed to have raised rates four more times. Higher US rates and higher term premiums should combine with an anchored short end to deliver a steeper curve. This view is reflected in our 2s5s steepener.”
“Today’s data also help reinforce our expectation that relative AUD underperformance will continue in 2018, driven by: 1) the ongoing monetary policy divergence between a patient RBA and other major central banks; and 2) the bias for a lower Australian terms of-trade. Moderating growth in China given the push for supply-side reform and deleveraging, as well as still rising supply globally should remain headwinds for base metal prices.”
