Australia’s Q2 data was surprising enough to change the narrative around the economy as the 0.9%qtr rise in GDP in Q2 was comfortably above the 0.7% median forecast but it wasn’t an especially large miss and the details of Q2 were generally close to expectations, including 0.7% on consumer spending, explains Sean Callow, Research Analyst at Westpac.
Key Quotes
“The shock was in the scale of revisions. These are usually minor but in this case, growth in the previous 3 quarters was reported to be 0.4 percentage points higher than in the Q1 release. As a result, instead of y/y GDP growth dropping back from Q1’s then-reported 3.1% to sub-3%, Australia is officially growing at its fastest pace since 2012.”
“Population and productivity trends suggest Australia’s sustainable potential growth rate is about 2.75%, so the RBA this week was on very firm ground in its view that “the economy is estimated to have grown at an above-trend rate” in H1 18. What’s more, Australia’s growth of 3.4% from June 2017 to June 2018 is faster than the much-lauded US economy, which grew 2.9%. (The 4.2% “headline” rate is actually 1%qtr annualized).”
“To be sure, there are plenty of qualms about sustainability of growth, with the drought likely to become evident in H2 data and the 1.0% household saving ratio warning that slow wages growth is still squeezing the consumer. But at least until the Q3 data is released in December, Australia’s headline growth supports the RBA’s upbeat outlook.”
“So why is AUD the second-weakest G10 currency over the week? Markets were already pricing a steady hand from the RBA deep into 2019, with the yield on late 2019 contracts rising only modestly. More pertinent for AUD seems to be ongoing stress in emerging markets including near-neighbour Indonesia and the ongoing trade tensions between the US and China. Good news at home but trouble abroad.”
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