Big Aussie GDP miss puts RBA forecasts in jeopardy

• Q3 real GDP growth comes in at 0.3% quarter-on-quarter, expectations were for 0.6% while the prior figure was 0.9%.
• Annual pace of growth slows to 2.8% versus a forecasted 3.3%, down from 3.1% and revised from 3.4%.

Ouch! A big miss for GDP in Australia where quarterly GDP growth slid back to 0.3% from 0.9% last quarter, putting the annual GDP growth rate at 2.8%. The pace of expansion is the weakest since Q3'16 when GDP contracted. This is an unnerving drop and confirms the mounting headwinds and growing chorus of expectations that GDP growth will likely be weaker than the Reserve Bank of Australia’s own 3.5% average GDP growth for the coming year.

To meet the 3.5% target for December 2018, the Australian economy would have to advance more than 1% in the coming quarter – not impossible, but unlikely. The last time the economy grew more than 1% in a quarter was back in September 2011 (1.3% q/q GDP growth).

Household spending and private investment both stumbled, weighing on growth. All eyes are on the household indicators with house prices continuing to fall and consumption accounting for around two-thirds of the economy. The effect of a sustained fall in the housing market is a key risk to forecasts and not to be underestimated. The household savings ratio fell to 2.4%, the lowest level since the financial crisis, but this drawdown is failing to support strengthened household consumption. Household spending growth slowed from 0.9% in Q2 to 0.3% against a declining household savings ratio.