Australia: Softer consumption outlook signals risks to official forecasts - Westpac

Bill Evans, Research Analyst at Westpac, explains that the signals from the September quarter national accounts indicate that official forecasts for consumption (60% of GDP) growth are too high and will probably need to be revised when MYEFO is released before Christmas. This will also probably have implications for the RBA's own growth forecasts, he further adds.

Key Quotes

“Both the Reserve Bank and Treasury will be disturbed by the details behind the September quarter national accounts which printed on December 6.”

“The accounts showed that the Australian economy expanded by a less than expected 0.6% in the September quarter to deliver an annual growth rate of 2.8%.”

“Treasury’s May forecasts and the RBA’s November forecasts are remarkably similar giving us a reasonable insight into the RBA’s likely forecast profile.”

“For 2017/18 (year average) Treasury forecasts 2.75% growth and for 2018/19 (year average) Treasury forecasts 3%.”

“For 2017/18 (year average) the RBA forecasts 2.75% growth and for 2018/19 (year average) the RBA forecasts 3.25%.”

“Westpac’s year average forecasts are 2.7% (2017/18) and 2.5% (2018/19).”

“Note that our forecasts for 2017/18 are close to Treasury’s current number due to Westpac having stronger business investment and government spending forecasts. Treasury is likely to lift their forecasts in that area for 2017/18 but from a policy perspective the key forecast will be 2018/19 where our forecasts are much weaker than Treasury.”

“Finally, we have not changed our through the year GDP forecasts from 2.5% in both 2018 and 2019.”

“Our slightly lower consumption profile is offset by a stronger profile for government spending.”

“However the risks to our growth forecasts are firmly to the downside with only a modest further slip in our consumption profile seeing growth in 2018 slide to a disturbing 2.25%.”