Australia: Economy likely to post modest contraction in real GDP in Q1 - NAB

The research team at NAB points out that Australia’s Q1 GDP data will be released on Wednesday 7 June at 11:30am AEST and economic partials point to a modest contraction in real GDP in Q1 of -0.1% q/q.

Key Quotes

“This would be the second contraction in three quarters, following the strong growth of 1.1% in Q4 2016 and decline of 0.5% in Q3 2016. The year-ended rate of growth would slow to 1.3% y/y, the weakest rate since Q3 2009.”

“While some of the contraction has undoubtedly been driven by the weather and other one-offs (as in Q3 last year), the question for next week will be whether the slowdown includes signal as well as noise, and implies a more fundamental economic slowdown.”

“On the upside, business investment looks to have been more encouraging this quarter and is no longer dragging on economic growth, while business conditions remain elevated. More problematic however is the slowdown in household consumption amidst poor wages and household income growth (albeit again there are some weather related effects here, some of which have already reversed). Should this continue, it is unlikely that forecasts of 3%+ growth from Treasury and the RBA will be met in the near term, particularly when LNG exports start to flatten off from 2018 (although it will support growth outcomes for the remainder of 2017).”

“The fall in dwelling construction this quarter suggests some risk that the dwelling construction cycle has peaked a little earlier than expected, although weather is also a likely factor and it’s more likely to suggest a more elongated cycle. Our forecasts assume some further (modest) growth in 2017 before peaking in 2018.  There is also some small possibility of a negative GDP print in Q2 (which would take Australia into technical – but not real - recession), given the hit to coal exports from Cyclone Debbie, although there should be enough offset from LNG exports and government spending to keep GDP in the black.” 

“Our forecasts appear substantially weaker than those published in the RBA’s latest Statement on Monetary Policy of around 1¾% y/y, although only look a touch lower than those forecast by the Federal Treasury in the latest Budget. The implications for monetary policy will hence depend on the degree to which the RBA views the slowdown as driven by temporary factors or a more enduring slowdown (or both). At this stage, however we continue to expect the RBA to wait and watch before drawing any conclusions about how weakness in the labour market and GDP data and/or strength in house prices will resolve itself.”