Australia: GDP growth dips in Q3, but remains robust
December 5, 2017
Following an especially strong second quarter, the economy slowed in the third quarter according to figures recently released by the Australian Bureau of Statistics (ABS). GDP expanded 0.6% quarter-on-quarter in Q3 in seasonally-adjusted terms, down from a revised 0.9% in Q2 (previously reported: +0.8% quarter-on-quarter), slightly undershooting analysts’ expectations. On an annual basis, the economy grew 2.8%, up from Q2’s 1.9% but also coming in below market forecasts. The Australian dollar weakened against the U.S. dollar on the news, with investors taking the figures as a sign that the Central Bank could leave interest rates at their current low level for longer.
On the domestic front, the expansion was driven by fixed investment growth (Q3: +1.8% qoq; Q2: +0.4% qoq). This came on the back of buoyant business confidence, reflected by strong employment growth and the Central Bank’s business confidence indicator, which remained firmly in positive territory throughout Q3. However, the contrast between the situations of firms and consumers grew starker: Private consumption expanded a mere 0.1% in Q3 (Q2: +0.8% qoq), with households weighed down by high debt, low savings and meager wage growth. Government spending grew 0.2% (Q2: +1.2% qoq), dragged down by a small contraction in spending at the national level.
Exports expanded robustly in the third quarter (Q3: +1.9% qoq; Q2: +3.3% qoq), thanks to strong shipments of goods, while imports also grew 1.9% (Q2: +0.5% qoq). As a result, the external sector’s net contribution slipped from plus 0.5 percentage points in Q2 to zero percentage points in Q3.
Looking ahead, economic growth should remain fairly healthy. Fixed investment will likely continue to be supported by positive business sentiment, while a tighter labor market should gradually boost wages and aid private consumption. Exports will be given a welcome boost next year thanks to greater LNG exports, as new projects currently under construction come online.
Australia GDP Forecast
The Reserve Bank of Australia (RBA) sees the economy growing 3.0% in 2018 and 3.25% in 2019. FocusEconomics Consensus Forecast panelists see the economy expanding 2.7% in 2018 and 2.6% in 2019.
Author: Oliver Reynolds, Economist