Australia: GDP shows consumers stalling but investment stronger - Westpac

According to Elliot Clarke, Research Analyst at Westpac, the past week has seen two major events for Australia: the December RBA Board meeting; and the release of September quarter GDP.

Key Quotes

“Most notable from the RBA’s decision statement was an increased degree of comfort over the Australian dollar. As highlighted by our Chief Economist Bill Evans, while the TWI has only fallen 1.8% since the November meeting, it has now declined more than 5% since its peak in July. The absence of comments in the statement such as November’s “the higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment” signals a renewed ease with the level of the Australian dollar. Discussion of the housing market also carried a more subdued tone, the outperformance of Melbourne no longer mentioned.”

“Also important to the policy outlook, the RBA remained optimistic on the outlook for investment, and expectant of continued strength in the labour market. However, caution over the state of the consumer was clearly on display: household consumption again recognised as a “continuing source of uncertainty”.”

“There was certainly more reason to be concerned over the state of the consumer following the release of the September quarter national accounts, as household consumption rose by just 0.1% in the quarter and 2.2% for the year. That annual pace is meaningfully below both the average of the post-GFC era and the expectation of the RBA, as highlighted by Governor Lowe’s speech to the ABE back in November. While household income growth did improve in the quarter, real disposable income rose by only 0.4% in the quarter and 0.6% over the year. Having fallen from near 5% in mid-2016 to 3% at June, the savings rate firmed slightly to 3.2% in the September quarter. This shift in the savings rate suggests that consumers are becoming more reluctant to fund spending with savings. Hence income growth will become all the more important.”

“The other components of GDP were a mixed bag. New residential construction has clearly past its peak and is now declining; and renovation work is adding further negative impetus. Business investment in contrast has shown further strength, particularly in the south east; however, these gains have been concentrated in non-residential construction (offices, hotels and alike) while equipment investment remains much more subdued. Public infrastructure investment is the current standout positive, though the benefit from this investment is heavily concentrated in the metro areas of Sydney and Melbourne.”