Australia, New Zealand and China update

RBA on hold Tuesday, Stevens speaking and a soft GDP report Wednesday, along with mixed July data: strong retail sales but soft building approvals. Pre-Q2 GDP partials also due Mon/Tues; NAB Online retail index due Wednesday



It’s a big week for local events with the RBA meeting on Tuesday and RBA Governor Stevens speaking on Wednesday in Adelaide at lunchtime. (No title as yet but he’s sure to be getting more questions on the outlook for the economy even if his speech wanders down another path.)

As for the RBA meeting, we’ve seen now for several months very little change in the post meeting statement wording. We expect the RBA to keep the cash rate steady again and we’ll be looking for any comment on this week’s construction and investment data and how that might be influencing the RBA’s outlook for the economy’s transition to more domestically-oriented growth.

It’s an absolute data feast that we get in the first week of the month in the lead up to a GDP report and the usual start-of month monthly partials, these for July.

Following a review of our GDP forecast for the June quarter and a full analysis of this week’s Construction and Capex, together with the release of a downwardly-revised nominal goods and services trade balance, NAB now forecasts GDP to have risen a meagre 0.2% in Q2, annual growth of 2.8% and following the strong Q1 1.1%/3.5%. While the Construction Work Done and New Private Capital Expenditure Q2 reports were not dramatically different overall from our expectations for private sector fixed investment, public construction was down a solid 6.4%, suggesting that public spending overall may yet have been a drag on growth this past quarter. We’ll see the estimates of public final spending in Tuesday’s Government Finance Estimates report for Q2 being released on Tuesday.

Bear in mind also that the RBA is looking for a subdued GDP outcome, so a very low positive or even small negative would not shock them.

On Monday and Tuesday there are other GDP partials, on Monday with the ABS Business Indicators report that provides estimates of companies’ gross operating profits (we look for -3%; the market flat) along with non-farm inventories that are expected to have risen 0.3% (market 0.4%), along with other handy data on nominal wages growth and sales, providing more clues of the income and production measures of GDP.

Tuesday has the Q2 Balance of Payments report containing the net export contribution to GDP where we now look for a 1% drag, a sharp turnaround from the 1.4% Q1 boost which elevated GDP growth to 1.1%. Earlier this week the ABS published an upwardly-revised nominal goods and services deficit of $4.691bn (up from $4.483bn at the time of the June goods and services trade data released earlier this month). The current account deficit is tipped to widen to $A14.3bn (3.6% of GDP), up from a now likely $A6.7bn deficit (1.7% of GDP).

Along with GDP on Wednesday we have the NAB Online Retail Index for July coming a day ahead of Thursday’s ABS Retail Trade report where we look for an above consensus 0.9% (market +0.4%). The NAB Business Survey recorded a marked lift in Retail Industry Business Confidence and rising Business Conditions in July; anecdotal reports also point to a positive report. As some counter, building approvals for July (out Tuesday) are likely to underwhelm, notching up a second decline, of 1½%; lower approvals expected with the recent cooling in home sales.

Thursday’s international goods and services trade balance for July is likely to reveal little change to the nominal balance with no expected change tipped for exports or imports, based on merchandise imports data, iron ore shipments and commodity price trends. Another deficit of $A1.7bn is forecast.

Completing the week will be yet another suite of other monthly data, including RP Data-Rismark home values for August likely to have risen by just over 1% after another substantial 1%-plus rise in July. The TD-MI CPI Gauge for July is being released on Monday along with the AiG PMI Manufacturing report, with the Services and Construction indexes later in the week.

New Zealand

Monday’s Overseas Trade Indexes (OTI) embrace the themes of this coming week’s NZ economic calendar – indicators on Q2 GDP and updates on export prices. We expect the OTI merchandise terms of trade fell 5.1% in Q2 (similar to market expectations). This entails a 6.5% drop in export prices – as the dairy price correction begins to show – and a 1.4% slip in import prices. We also anticipate a payback (fall), of around 2.5%, in the OTI export volume measure (as part of the 1.0% gain we expect for Q2 GDP).

The (ongoing) plunge in dairy prices is likely to keep Tuesday’s (1pm) ANZ commodity index on the back foot – down a further 3.4% for August, we reckon. It would be worse was it not for rising beef and aluminium prices. The lower exchange rate during the month should help limit the fall in local-currency terms to 2.5%. The very latest dairy price news, though, will come at Wednesday morning’s (NZ time) GDT auction. The key question is whether the happenings in Russia (Ukraine) will frustrate hopes of some price consolidation (let alone the rebound that’s needed to justify Fonterra’s milk price forecast up at $6).

For further colour on Q2 GDP, we expect Wednesday’s Building Work Put in Place to increase 1.5% in volume (even after +16.0% in Q1), while we’re looking for Friday’s Wholesale Trade to be up a seasonally adjusted 1.0% or so. Midday Thursday sees the QVNZ housing report for August.


Not a lot on the data calendar for China this coming week but the Manufacturing and Services/Composite PMIs are always closely watched as up-to-date gauges of growth.

After the downward surprise from the HSBC flash Manufacturing PMI for August, Monday’s official PMI will be poured over for any signs of renewed weakness in the economy.

We know that property prices have continued to soften, at least through July, that lending was limited, factors that might well have driven some negative downstream effects on industries supplying property construction looks on the cards, notwithstanding local government measures to shore up demand. The Official Manufacturing PMI is forecast to ease back to 51.2 from 51.7; anything lower, toward a reading of 50 would have the market thing less growth into Q3 and of course the likelihood of more targeted policy support.