Australian Q4 GDP expanded by 0.4% - Westpac

The Australian economy expanded by 0.4% in the December quarter and annual growth moderated to 2.4% from 2.9%, notes the research team at Westpac.

Key Quotes

“Employment and hours worked trends have been more positive. Hours worked increased by 1.1% in the quarter and by 3.5% over the year. Given that, the rise in output of only 0.4% in the quarter is a disappointing outcome.”

“The wedge in part reflects a temporary drop in exports, which stumbled in the quarter, contracting by 1.8% to be only 0.8% above the level of a year ago.”

“Net exports subtracted 0.5ppts from activity in Q4 and took a hefty 1.3ppts off growth over the past year. The export performance is expected to improve in 2018, led by LNG as new capacity comes on stream – although recent history does suggest some downside risks.”

“The arithmetic for the December quarter GDP of a soft 0.4% are: domestic demand 0.6%qtr, net exports -0.5ppts, and statistical discrepancy +0.2ppts (i.e. the income and production measures of GDP were stronger than the expenditure estimate).”

“Annual domestic demand growth has lifted to a moderate 3.1%, up from 2.5% for 2016, the strongest calendar year outcome since 2012. This is against the backdrop of stronger global growth. However, it is domestic dynamics which are more significant.”

“Broad themes are: well above trend growth in public demand (1.1%qtr, 4.9%yr), supported by an investment upswing; a trend turnaround in business investment (-1.0%qtr, but up +5.8%yr) reflecting a reduced drag from mining and an upturn in non-mining investment to meet the needs of a growing population; and an unfolding downturn in home building activity in response to the slowdown in high rise activity (-1.3%qtr, -5.8%yr).”

“Key surprises in these accounts were an upside on consumer spending, including a significant upward revision to history, and a sharp 10.3% fall in private infrastructure.”

“The drop in private infrastructure work is not cause for concern, it represents further progress in the mining investment wind-down. The 3 gas projects still under construction, Wheatstone, Prelude and Inpex, are due to be completed by around mid-2018.”

“Consumer spending increased by 1.0% in the quarter, while Q3 was revised up from a very weak 0.1% to 0.5% (reflecting updated estimates of spending overseas by Australian consumers - see below for more detail). Annual consumer spending growth is now 2.9%. That moves the dial on spending momentum from ‘lacklustre’ to ‘slightly below trend’”

“On the income side, total labour income posted a solid 1.1% rise in line with expectations but again with upward revisions lifting the trajectory. Nominal labour income is now up 4.8%yr.”

“As to national income, annual growth moderated to a below trend 3.5% in 2017, down from 6.5% for 2016. Key to this development, the terms of trade consolidated (+0.1%qtr, -1.0%yr) after rebounding in 2016, a time when commodity prices bounced off their lows.”

“The detail of this update will provide policy makers with some comfort. Consumer spending growth at close to 3.0% suggests that the economic expansion is more broadly based than previously assessed.”

“That said, going forward, the household sector remains vulnerable at a time of relatively weak wages growth and high debt levels. A likely slowing in employment growth from the current hiring burst will act to reduce consumer spending power.”

“The price / wage dynamic remains as it was – with core inflation below the band and private sector wages growth still relatively weak. Consumer spending at 2.9% is still a little below the long-run average and is not a pace that would typically lead to a build-up in inflation pressures.”