Aussie GDP Miss, Private Sector Languishes Aussie GDP Miss, Private Sector Languishes Aussie GDP Miss, Private Sector Languishes

Aussie GDP Miss, Private Sector Languishes

Macro 4 minutes to read

Summary:  National accounts data today highlight underlying softness in the Australian economy and the need for further stimulus measures. The private sector remains weak and the economy is currently propped up by the public sector. Household spending is sitting at levels not seen since the GFC with little reprieve on the horizon without a pickup in wage growth. We continue to argue that RBA will have to cut the cash rate again in 2020.


Australia 3Q GDP 0.4% q/q; 1.7% y/y

In the September quarter of this year the Australian economy expanded by just 0.4% q/q, missing analyst estimates of 0.5% q/q growth. Annual growth beat estimates rising to 1.7% y/y following upward revisions to in 2Q from 1.4% to 1.6%.

The quarterly pace of growth has picked up from the lows seen in the back half of 2018 (3Q18 0.3% q/q, 4Q18 0.2% q/q), so affirm the RBA’s assertions of a “gentle turning point” in the economy. But the problem being that although the worst may be over for now, below the bonnet all is not well and the economy is weak. The key weakness is in the private sector, where private demand is in recession with investment contracting, housing construction falling and household spending slowing to levels not seen since the GFC. Growth is soft and remains well below trend (approx. 2.75% y/y), household spending contributed just 0.1% to Q3 GDP, the lowest contribution since the GFC, and more importantly, looking ahead, the outlook for household spending continues to remain under pressure. Once again, the economy is not being driven by a thriving private sector and a healthy consumer, but instead it is being propped up by public spending and exports. Against the backdrop of labour market spare capacity and stagnant wages growth stunting the potential for household consumption to lift, the current protracted underperformance will be sustained for a prolonged period. We continue to expect growth to remain below trend throughout the year ahead and further stimulus measures will be implemented. The RBA remain far too optimistic and behind the curve on growth, in order to meet their 2019 growth forecast of 2.3% (which has already been revised down), Q4 GDP needs to accelerate to 0.7% q/q growth. This is highly unlikely and spells another downgrade marking to market the RBA’s rosy forecasts.

Inflation remains stubbornly low and the labour market has continued to deteriorate, for the RBA to meet its mandated inflation target and full employment goals we reiterate more stimulus will be required. We continue to expect the unemployment rate to drift higher as the construction cycle downturn spurs job losses and several quarters of below trend growth and weak private demand will weigh on employment growth in coming months. This will make it increasingly difficult for the RBA to meet their objective of 4.5% unemployment, by their estimates the theoretical level of unemployment below which inflation would be expected to pick up, hence the door is open for continued easing.

Spare capacity in labour market, as measured by both unemployment and underemployment, also remains an ongoing issue for the RBA, preventing material upward pressure on wages. This is especially problematic for consumers struggling to maintain spending against a wall of household debt. Without income growth household spending will continue to be pressured, a dynamic that is playing out in real time in the national accounts. The rate cuts already delivered by the RBA along with the tax cuts are to date having a limited effect in boosting household spending which is currently sitting at GFC levels. Consumers are choosing to add to precautionary savings and deleverage given wage growth is weak and household debt levels remain high and economic uncertainty is rising, something we flagged previously, that is now evidenced by the pickup in the household savings rate in today’s data to 4.8% from 2.7%. And although house prices have risen in the last few months any positive wealth effect is lagging given the level of indebtedness and falling consumer sentiment surveys point to rising concerns over the economic outlook. Deleveraging may be favourable for the long-term stability of the Australian economy given the current household debt to income ratio is just a little under 200%, but it is not favourable to current growth contributions.

Another factor swaying the RBA’s hand in continued rate cuts is the Australian governments promise to return the budget to surplus. Their limited appetite for implementing a complementary fiscal stimulus package leaves the RBA doing the heavy lifting with respect to the Australian economy. Dropping the surplus fixation is not politically palatable to the Morrison government and even more so now S&P Global Ratings have warned that more fiscal stimulus could put Australia's AAA credit rating in jeopardy.

We still expect the RBA will ease again in February and once more in 2020 taking the cash rate to 0.25%, the effective lower bound. 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.