Australia: Q3 GDP  points to continued expansion of the economy - Wells Fargo

Analysts from Wells Fargo, explained that yearly GDP growth in Australia picked up in the third quarter but was a bit below market expectations.  They noted that consumer spending was soft, reflecting spotty retail sales during the quarter.

Key Quotes: 

“The Australian economy expanded 0.6 percent over the quarter (not annualized), just shy of market expectations of 0.7 percent. That said, it still marked an improvement in yearly growth to 2.8 percent, which points to the continued expansion of the Australian economy.”

“A lead driver of third quarter growth was the improvement in investment spending. Increasing 1.8 percent on the quarter (not annualized), this rise in fixed investment is encouraging for the sector as it continues to improve this year. This print marks the second-fastest growth rate going back to 2012. “

“The weak print in private consumption could reasonably have been expected given the muted retail sales figures over the quarter. Having grown at 0.1 percent, this marks the weakest growth rate in household spending since 2008.”

“October retail sales figures jumped 0.5 percent, signaling potential improvement into the fourth quarter. Weak retail figures are, in part, a continued reflection of subdued wage growth within Australia.” 

“As was broadly expected, the Reserve Bank of Australia kept its cash rate on hold at its December meeting. RBA Governor Philip Lowe noted improvement in the labor market and as well as his expectation for the soft wage growth dynamic to eventually give way to a lift in wages and broader inflation over time. The text of the accompanying statement was upbeat on the economy, particularly the outlook for the non-mining sector."

“A rate increase is not yet in the cards in Australia, but if inflation firms in the manner describe by Governor Lowe, signals of eventual tightening may creep into the discussion in 2018. In the meantime, a measured but broad improvement in global growth and higher commodity prices should be supportive of the Australian currency. Meanwhile, as we get into 2018, renewed trend weakness in the greenback and eventual signals from the RBA on rate hikes should signal moderate gains for the Aussie dollar.”

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