Below trend growth to continue
Household income and construction drag.
GDP recorded another quarter of weak growth, lifting a modest 0.2% q/q and resulting in through the year growth of 2.3% in 2018. It is clear that growth in H2 2018 slowed significantly from the pace seen in H1 2018 – growth annualised at only 0.9% in H2 2018. Even with faster momentum through 2019, growth is unlikely to reach the 3.0% rate expected by the RBA over 2019. NAB’s forecast is for the RBA to keep rates on hold for the foreseeable future, though we have signalled increased risk of a rate cut. Any significant deterioration in the labour market would likely see a series of cuts by the RBA. We will review today’s data and next week’s NAB Business Survey before releasing updated forecasts next week.
The soft results of recent quarters reflect a combination of the downturn in housing, continuing relatively slow income growth (though this has improved a little) and the tail end of the wind down in mining investment.
On the expenditure side, the weakness in the quarter was largely a result of soft consumption growth, a sizable fall in dwelling investment and weaker-than-expected growth in business investment. Growth was supported by a solid contribution from underlying public demand, driven by ongoing growth in government consumption – likely NDIS related; government investment fell in the quarter. Both the income and production measures of GDP saw weaker prints in the quarter and have tracked substantially below the expenditure measure over the year. Of note, the farm sector continued to show weakness, again falling in the quarter from the ongoing effects of the drought. Price and wage measures remain muted and despite a small lift in unit labour costs growth, overall inflationary pressures remain muted.
For further details, please see the Q4 2018 GDP Report
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