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Chidu Narayanan, economist at Standard Chartered, notes that Australia’s GDP growth slowed to a post-GFC low of 1.4% y/y in Q2 on slowing consumption and declining investment.

Key Quotes

“While the trade surplus rose to an all-time high on elevated iron ore prices, we expect this source of support to fade substantially in H2 as exports decline from current highs.”

“Household consumption, which contributes c.55% of growth, is likely to edge lower in H2 on deteriorating labour-market conditions, subdued wage growth, declining consumer confidence and a soft property-market outlook. While government spending should take up some of the slack, we expect it to be insufficient to boost growth to trend levels. To reflect these headwinds, we lower our GDP growth forecasts for 2019 and 2020 to 1.7% (from 2.1%) and 2.2% (from 2.5%), respectively. We also revise down our inflation forecasts for both years, to 1.7% (from 2.0%) and 2.1% (from 2.2%).”

“We expect labour-market conditions to deteriorate sharply over the next few months as declining construction activity leads to significant job losses. We expect the unemployment rate to rise above 5.5%; this will weigh further on household consumption.”

“We expect two more 25bps rate cuts from the Reserve Bank of Australia (RBA) in Q4 as growth slows further. However, we see them coming only in November and December given the RBA’s reluctance to cut rates.”