Australia: Growth rebounds, but the consumer remains under pressure – Westpac

The Australian economy grew by 0.8% in the June quarter 2017, an improvement on a weather disrupted gain of only 0.3% in the March quarter while the annual growth held steady at 1.8%, or only 0.2% per capita, notes Andrew Hanlan, Senior Economist at Westpac.

Key Quotes

“It has been a volatile year for the Australian economy, impacted by one-offs, including the July 2016 Federal election and weather disruptions.”

“The four quarter profile for real GDP is -0.4%, 1.1%, 0.3% and 0.8%. Annual growth will likely jump in September as the -0.4% for September 2016 drops out of the calculation.”

“The arithmetic for the June quarter was: domestic demand, 1.0%; total inventories -0.6ppts, reversing a +0.4ppts; and net exports, +0.3ppts, after a -0.9ppts, a drag in Q1 centred on supply disruptions to resource exports.”

“There were a number of positives in the June quarter, suggesting that the overall economy gained momentum in mid-2017, against the backdrop of stronger world growth.”

“Key positives include: above trend public demand growth, centred on an ongoing investment upswing; a lift in employment, as firms hired more aggressively after overdue caution in 2016; business investment advanced for a third consecutive quarter, as the drag from the mining investment wind-down fades and as the non-mining economy boosts spending to meet rising demand; and service exports increased at a solid pace to meet demand from the Asian region.”

“Despite this, June quarter GDP growth of 0.8% fell short of final expectations (market median 0.9% and Westpac 1.0%).”

“The key and significant negative surprise was around wage incomes and consumer spending.”

“As to national income, note that nominal GDP was broadly flat in the quarter, -0.1%, with the terms of trade declining by 6.0% on a dip in commodity prices. However, over the past year, the terms of trade is still up 14.9% and nominal GDP growth is an above par 6.3%.”

“For the RBA and policy makers, the national accounts represent something of a mixed bag. Overall conditions gained momentum mid-year, employment growth has strengthened and the global backdrop has improved. However, the fundamental headwind of weak wages growth and resulting lacklustre consumer spending persists, and this is ahead of a looming downturn in home building.”