Australia: 2Q17 GDP growth is 0.8%QoQ - ING

Rob Carnell, Chief Economist at ING, notes that Australia’s 2Q17 GDP growth is 0.8%QoQ with inventories being a big drag, but disappointing investment.

Key Quotes

“In the end, our last-minute 2Q17 GDP forecast revision yesterday (0.9% up from 0.5% initially) turned out quite well, though it would have been even better if we had given more credence to the likelihood of a drag from inventories than we in fact did. The 0.3ppt drag from inventories was the main reason why stronger net exports did not deliver a better outcome than the original 0.8% consensus figure (final consensus rose to 0.9% on the trade figures).”

“Within the other components, household consumption provided a boost of 0.4ppt, a bit less than we had figured, and private investment was also quite soft, with gross fixed capital formation subtracting 0.2ppt form the GDP total. Again, worse than we had imagined.”

“Net exports of course were a boost, to the tune of about 0.4ppt, but it was public spending by the government, especially public capital formation, that delivered much of the good news in these numbers.”

“We draw mixed conclusions from these figures. It is not surprising that household spending is not more positive, given the absence of any real wage growth. But with business investment lacklustre, that is not a strong indication that corporates are about to start shelling out wage increases any time soon. Consumption could remain range bound as a result.”

“Moreover, it is never very encouraging to see the public sector accounting for so much of the rise in activity. That can only be sustained by borrowing for so long, before it crowds out other private activity.”

“But the drag from inventories, though likely reflecting the better net export story to some extent, is likely to dissipate in the quarters ahead. And this is likely to provide some underlying support to the overall headline numbers.”

“RBA Governor Lowe yesterday suggested that the economy would build on these GDP figures. We suspect the near term may actually see a little retrenchment first, but tend to agree that the growth trend is solidifying. That still leaves the RBA a long way from needing to adjust policy. Tightening remains a 2018 story.”