The zero.four% Australian GDP development for the third quarter was decrease than forecast by the Reserve Financial institution this week. However though it may need caught Martin Place without warning, it’s no nice shock to many shut observers of the Australian economy.
With the retail sector on its knees (the sector is forecast to develop at an anaemic zero.three% in figures due out on Thursday), wages nonetheless stagnant and severe doubts about whether or not the once-booming building sector can proceed to assist development, the outlook touted by the RBA on Tuesday seems fairly optimistic.
All this comes regardless of the economic system successfully residing on the life assist of ultra-low rates of interest. There’s a rising expectation that the RBA will scale back the money fee to zero.25% subsequent yr – a degree related to the post-GFC emergency within the US and Europe.
The annualised determine for GDP is a wholesome wanting 1.7% so the financial institution seems in a single sense justified in sticking to its glass half-full outlook in its assertion after the month-to-month financial coverage assembly on Tuesday, wherein it stored charges on maintain at zero.75%. It stated that after a little bit of a wobble final yr, the economic system seems to have reached a “light turning level”. It says development will choose as much as three% by 2021.
However Wednesday’s launch by the Australian Bureau of Statistics suggests a worsening image.
Robust exports in sources and providers added zero.2 of the zero.four proportion factors, with the opposite zero.2 coming from what they name remaining home demand. However, in a telling phrase, the ABS assertion says authorities spending was the primary contributor to this latter determine. However distinction, non-public demand is in recession. In different phrases, Australian households aren’t spending the additional cash gifted to them by the Coalition’s tax cuts and from traditionally low mortgage charges. Family expenditure elevated simply zero.1% with specific weak spot in spending on discretionary items and providers, the ABS said.
In one other signal of shopper weak spot, gross sales of latest vehicles fell 9.eight% in November, the 20th month-to-month decline in a row, in accordance with the Federal Chamber of Automotive Industries.
The consultancy Capital Economics, which was one of many forecasters to doubt the RBA’s rosy outlook, stated on Wednesday that the “measly” enhance in family spending was the “slowest for the reason that international monetary disaster and underlines that the federal government’s tax cuts aren’t offering any increase to shopper spending”.
It stated consumption might but choose up however estimated that GDP development is “nonetheless set to fall in need of the RBA’s optimistic forecasts”.
Looking forward to subsequent yr, Capital thinks extra fee cuts are nailed on – with a powerful likelihood of cash creation schemes equivalent to quantitative easing by the second half of the yr.
“We reiterate our forecast that the Financial institution will lower charges by [o.25%] in February and April and launch quantitative easing within the second half of subsequent yr,” Capital stated.
Economists at UBS stated: “GDP stays comfortable, with little enchancment so removed from fee cuts and tax cuts, as households both save extra or repay debt; seeing non-public demand fall into recession.”
Sarah Hunter, chief economist for BIS Oxford Economics, stated the figures spelled out the “persistent weak spot in family spending” and that households have chosen to avoid wasting the cash from tax and mortgage cuts, noting that the financial savings fee jumped as much as four.eight%.
“Wanting forward, it’s unlikely that we’ll see a considerable acceleration in GDP development within the close to time period,” she stated. “Broadly talking, at this time’s information confirms our view that on an annualised foundation the tempo of development is broadly prone to maintain round 2% for the following 12 months.”
Josh Frydenberg had sufficient positives to defend his file when he responded to the GDP figures on Wednesday. Tax cuts have been good for the economic system, he stated, and so was infrastructure spending. However until these issues translate into individuals feeling higher off, a cloud will stay over the Treasury.