Shane Oliver | Dec 06, 2017 13:55
Originally published by Cuffelinks
The Australian economy as measured by GDP grew by 0.6% in the September quarter, which was a little weaker than consensus estimates for a 0.7% gain, but is still a decent outcome. Annual growth increased to 2.8% (from 1.9%) but is artificially strong because while the negative September quarter in 2016 dropped out of the annual calculation it’s bounce back in the December quarter last year remains in (see the chart below). If growth in the current quarter comes in around 0.6%, GDP growth through 2017 will be 2.5% which is still a bit below potential growth (of around 2.75%).
The main points from the September quarter GDP data are:
GDP growth is on track to lift towards 3% in 2018 which would be in line with the Reserve Bank’s forecasts. There are clear growth drivers emerging – the mining investment downturn is nearly complete, non-mining business investment is lifting (predominately in the services space) and public infrastructure spending is surging thanks to elevated state budget surpluses (in NSW and Vic), asset sales and the Federal Government’s commitment to boost infrastructure projects. Net export growth should remain solid thanks to strong global growth and the completion of resource projects.
These drivers should be sufficient to offset slowing housing construction and weak consumer spending. However, the risks around consumer spending need to be watched closely.
So far, moderate GDP growth has not been enough to produce the desired pick-up in inflation or wages growth. Numerous businesses are under pressure to keep costs competitive particularly in the retail, food, insurance and communications areas. High levels of underemployment are continuing to weigh on wages growth and various business surveys indicate that labour costs are still expected to remain low, so wages growth is expected to stay subdued for a while yet. While the price and wage outlook remains subdued and the risks remain significant around the consumer, it is difficult to see a near-term RBA rate hike. So we remain of the view that the RBA won’t start raising interest rates until late next year at the earliest.
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