on 07-09-2016 09:38 AM
The Australian growth numbers are released tomorrow and the partial data that goes into the GDP puzzle have been released over the past few data. Key points include:
- Australia’s current account deficit has been revised down substantially because of a change in estimates for the primary income deficit. The current account deficit is now around 3.7% of GDP – below the 5.2% recorded this time a year ago. A narrowing in Australia’s external debt is important in maintaining the AAA credit rating.
Source: ABS, AMP Capital
- The terms-of-trade (a measure of export prices to import prices) rose by 2.3% in the June quarter thanks to higher commodity prices lifting export prices and also because of a fall in import prices. This is the first increase in the terms-of-trade since the end of 2013 and is important for Australia’s overall income growth which flows through to government spending, business profits and household wages & salaries.
- Public spending will make a large contribution to second quarter growth, particularly in government investment (although the headline number is flattered by an asset purchase).
- We expect that tomorrow’s GDP numbers will show that Australian GDP rose by 0.6% in the June quarter with annual growth around 3.4% - marginally above the RBA’s estimates for 3.25% growth. Household consumption growth is still holding up, dwelling investment should increase (particularly across alterations & additions), business investment will decline as mining capex continues to fall, government spending will make a sizeable contribution to growth, net exports will detract from GDP this time round and inventories will make a small contribution to growth.
- The Australian economy is holding up well in the face of an elevated currency and a continued decline in mining capex.
- A June quarter GDP outcome above the RBA’s forecasts is a risk to our view that the RBA will cut the cash rate in November. However, growth numbers earlier this year were also quite good and did not stop the RBA from cutting the cash rate (twice) because of the lack of inflationary pressures. The next inflation data (out at the end of October) is a key event to watch.