February 29, 2016

Australia GDP Preview – Q4 2015

The major themes driving the expenditure measure of GDP are unlikely to surprise.

Q4 GDP data will be released on Wednesday 2 March at 11:30 AEDT.

  • Economic partials for Q4 point to moderate real GDP growth of 0.6% in the quarter. This is down from strong quarterly growth in Q3 of 0.9% q/q which was partly unwinding temporary weakness in Q2. Looking through the quarterly volatility, year-ended growth is forecast to pick up to 2.7% y/y – while temperate, this would be the strongest rate of growth since mid- 2014 and just above the 5-year average, but below the pre-GFC average of around 3¼%.
  • Measures of national income however will remain depressed, given another sharp 5% fall in the terms of trade and subdued wages growth (although strong employment will provide some offset)
  • The major themes driving the expenditure measure of GDP are unlikely to surprise. That is, mining investment will have continued to drag on domestic demand while non-mining investment remained frustratingly tepid. This is likely to have been offset by strong net exports (both from resources and tourism/education exports). Meanwhile, dwelling construction and household consumption are likely to have grown at a solid rate in Q4, supported by the high level of building approvals and strong employment growth. Public expenditure is likely to have been boosted by the commissioning of Landing Helicopter Dock HMAS Adelaide in December 2015.
  • Industry gross value added figures should imply a more entrenched recovery in the non-mining economy, particularly services sectors as indicated by the NAB measure of business conditions. The shift towards more labour-intensive industries (away from capital-intensive sectors) is consistent with strong employment growth, and frustratingly weak non-mining investment.
  • Our forecasts are slightly above RBA expectations in the latest Statement on Monetary Policy of 2½%. This may provide some reassurance to the RBA amidst an uncertain global backdrop. We anticipate no change at the RBA’s board meeting on Tuesday.
  • While GDP is normally an important release for the AUD and short-dated yield reactions, we do not expect this release to have a sustained impact on market pricing given current sentiment is being driven by global factors.

For further information please refer to the attached report: