Breaking News
0

The Economy Slowed Sharply In The September Quarter - Next RBA Move Will Be A Cut

By Shane OliverMarket OverviewDec 05, 2018 14:34
au.investing.com/analysis/the-economy-slowed-sharply-in-the-september-quarter--next-rba-move-will-be-a-cut-200199426
The Economy Slowed Sharply In The September Quarter - Next RBA Move Will Be A Cut
By Shane Oliver   |  Dec 05, 2018 14:34
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Originally published by AMP Capital

  • GDP rose by just 0.3% in the September quarter and this saw annual growth slow to 2.8% year on year.

This was well below market (and RBA) expectations for growth around 3.4% year on year.

To some degree the slowdown in the September quarter reflects payback after two surprisingly strong quarters. But it also highlights the uncertainty around consumer spending as house prices slide and the ongoing patchiness of business investment. We still see the risk of a recession in Australia as being low, but the rising list of downside risks to growth also mean that growth is likely to be constrained at around 2.5-3% over the year ahead as opposed to achieving the RBA’s expectation for growth “to average around 3.5%”.

Australian real GDP growth
Australian real GDP growth

The main points from the September quarter GDP data and associated outlooks are as follows:

  • Consumer spending slowed to just 0.3% quarter on quarter or 2.5% year on year. Looking forward, apart from quarterly volatility, consumer spending is likely to remain under pressure. Yes employment growth has been strong but this is likely to slow, wages growth is likely to remain weak (with average earnings up just 0.2%qoq or 1.2%yoy in the September quarter) and households are unlikely to have the confidence to run down their saving further in the face of declining home values. (While the household saving rate was revised up its still just 2.4% which is down from around 9% in 2011 and more than a 10 year low). Likely fresh tax cuts next year might help but its doubtful they will be enough.
  • Housing investment rose 1%qoq and contributed 0.1 percentage points to growth. But while there is still a decent pipeline of work yet to be finished, housing investment will likely slow as the downtrend in building approvals flows through. This in turn will act as a drag on consumer spending via slower demand for household goods.
  • Underlying business investment (which takes into account asset transfers between the private and public sector) fell 1.9%qoq and detracted 0.2 percentage points from growth. Mining investment is continuing to fall but at least it’s getting near the bottom and the outlook for non-mining investment has improved.
  • Underlying government spending (which takes into account asset transfers between the private and public sector) rose 1.5%qoq and contributed 0.4 percentage points to growth, with the infrastructure spending boom continuing. Public spending is likely to make a continuing solid contribution to growth over the next year.
  • Inventories detracted 0.3 percentage points from growth.
  • Net exports made a 0.3 percentage point contribution to growth. The outlook for export growth is still positive thanks to resource exports and as service exports like tourism and education continue to grow. But the contribution to growth is likely to slow going forward and is at risk if the US trade war with China is not resolved next year.
  • Inflation pressures and wages are still subdued. Inflation as measured by the private final consumption deflator was just 0.4%qoq or 1.6%yoy. Average compensation per employee was up by just 0.2%qoq or 1.2%yoy. And real unit wages costs are falling at the rate of 1.5%yoy.

Implications

The Australian economy continues to grow but its slowed back to a subpar pace after a brief spurt. A bottoming in mining investment, improving non-mining investment, strong infrastructure spending and strong export earnings should support growth going forward but are likely to be offset by the downturn in housing construction and house prices weighing on consumer spending. As such growth is likely to be stuck around 2.5-3% over the year ahead. Given the combination of falling house prices, tightening credit conditions and constrained growth which will keep wages growth weak and inflation below target we are changing our view on the RBA from being one of rates on hold out to second half of 2020 to now seeing the next move being a rate cut. However, with the RBA still seeing the next move as being up it will take them a while to change their thinking so we don’t see rates being cut until second half next year. When it does start cutting the RBA will likely stick to 0.25% increments and since rate moves are a bit like cockroaches there is likely to be more than one. This in turn will ultimately weigh on the Australian dollar.

The Economy Slowed Sharply In The September Quarter - Next RBA Move Will Be A Cut
 

Related Articles

The Economy Slowed Sharply In The September Quarter - Next RBA Move Will Be A Cut

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email