Australia: Growth is accelerating - Westpac

Growth has accelerated in Australia in 2017 and the employment backdrop has surprised on the upside following a period of weakness in 2016, points out the research team at Westpac.

Key Quotes

“Business sentiment and conditions have been positive while consumer sentiment remains moribund (notwithstanding a lift in October).”

“While headline employment numbers have been positive, the detail of the jobs survey has not. Employment gains have been very narrowly focused and this distribution of job creation is a key reason why wages growth is currently at historic lows and likely to remain there over the forecast period.”

“We expect growth will be slowed in 2018 by a reluctant consumer – weighed upon by low wage growth, high energy prices and high indebtedness – combined with an expected slowdown in the residential construction sector. With a benign inflation backdrop, macroprudential tightening and cooling housing markets, our expected growth profile will keep RBA on hold through 2017, 2018 and 2019.”

“High house prices and high levels of household debt means a key focus remains on housing risks. Residential property markets have showed signs of a material slowing in recent months, concentrated in the regions that previously experienced the strongest growth – particularly Sydney. The slowdown has been driven by macroprudential policies and associated rate rises as well as a raft of policy changes here and aboard which have crimped foreign buyer demand.”

“Per above, debate continues in the National Energy Market (NEM) with prices rising sharply and accounting for the bulk of expected Q3 headline inflation.”

“We have maintained a 0.76 year-end target for AUD, with further weakness expected in 2018, on the basis that markets were under-pricing the Fed, over-pricing the RBA and not considering risks around softer commodity prices through year end. At the same time, capital flows are becoming less supportive for A$ and the spec community is long according to CFTC positioning.”

“Also note, the High Court is soon set to provide its decision on whether some Federal MPs comply with the constitutional requirement not to be a “dual citizen”. While the government has been functioning in the wake of this distraction, the potential for the decision to invalidate a number of current MPs, including the current Deputy PM, would create political chaos for the Government. Section 44 may well be out of date and pragmatism is expected, but this bears watching.”