Australia: Q3 GDP disappoints but 2017 outlook remains constructive - Westpac
Andrew Hanlan, Research Analyst at Westpac, notes that the Australian economy contracted in the September quarter, with a sharper fall than anticipated. Q3 GDP was 0.5%, after a +0.6% while the annual growth slowed to 1.8% from 3.1%.
Key Quotes
“GDP declined by 0.5% in Q3, weaker than anticipated (market median 0.1% and Westpac 0.2%). Annual growth moderated to 1.8% from 3.1%. Over the past half year the economy was broadly flat, a 0.5% coming after a +0.6%. This is the first quarterly decline since the floods of March 2011, a 0.2%, and before that the GFC, a 0.7% in December 2008.”
“Weakness was broadly based, with declines across a number of segments of the economy somewhat at odds with the underlying trend or with the outlook. Positive growth is set to resume in the December quarter in our view.”
“More fundamentally, why the weakness.
- Lending conditions were tightened in the second half of 2015, with housing finance contracting over the half year to March 2016, with negative spillover effects.
- The July Federal election – the longest in living memory – added to uncertainty and likely saw households and businesses delay spending.
- Not coincidentally, in our view, the economy went sideways over the 6 month April September period, which was largely spanned by the election.
- A labour market undershoot in 2016, correcting an overshoot in 2015, has impacted household incomes at a time when households remain cautious.
- Global growth and global trade have remained lacklustre in 2016.
- The result does highlight the ongoing fragility of the economy and the vulnerability to shocks.”
“Comment
- The outlook for 2017 remains constructive
- RBA rate cuts in 2016 are having some impact, housing finance has stabilised and moved ahead a little
- Higher commodity prices are boosting national income and there will be a supply response, in coal for example
- We expect global growth to improve at the margin– led by the US.
- The Federal election is behind us – removing some uncertainty around public policy.
- A number of the Q3 negatives are overly weak and will not be repeated
- Retail sales have turned around, improving as we emerge from Q3 heading into Q4.
- Home building activity will advance in coming quarters, after approvals rebounded to record highs in 2016.”