Australia GDP Q4 2016


Australia: GDP returns to growth in Q4

March 1, 2017

The Australian economy rebounded in the fourth quarter following Q3’s surprise contraction. In the fourth quarter, GDP expanded a seasonally-adjusted 1.1% over the previous quarter, which contrasted the 0.5% contraction in Q3 and was above the 0.7% expansion analysts had expected. The result marked the fastest pace of growth since Q1 2015. A year-on-year comparison showed GDP growth improving from 1.9% in Q3 to 2.4% in Q4.

The result was driven by a strong rebound in domestic demand, boosted by an expansion in fixed investment. Fixed investment increased 2.6% in Q4, recovering part of the ground lost in Q3, when it had contracted 2.7%. The expansion stemmed from LNG-related investment projects. In addition, household consumption expanded 0.9% in Q4 after having grown 0.4% in Q3. However, the surge in private consumption growth seems to have been driven by a reduction in household savings because wages actually contracted in the December quarter. Taking into account the weak labor market, where the unemployment rate has been inching up and job creation seems to come from part-time jobs, it is unlikely household consumption will continue buttressing growth in the near future.

On the external front, export growth accelerated markedly, rising to 2.2% in Q4, following a 1.0% expansion in Q3. The acceleration was driven in large part by increasing LNG exports, which were supported by a weaker Australian dollar. However, LNG-driven export growth is unlikely to be as dynamic moving forward as the government moves to limit LNG exports in order to ensure the domestic market remains fully supplied. A report by the energy regulator in March warned the country could face severe energy shortages within a year because Australian gas producers are giving foreign markets priority over the domestic one. At the same time, imports accelerated but at a more moderate pace, bringing the contribution of the external sector to overall growth to 0.2 percentage points (Q3: -0.2 percentage points).

Q4’s strong GDP outturn brought overall growth for 2016 to 2.5%, a small improvement on 2015’s 2.4%. Despite the mild acceleration, growth was uneven across most sectors, with volatile business investment data suggesting the shift away from commodities is proving harder than forecast. Household consumption is starting to show signs of exhaustion with high indebtedness, low wage growth and a stubbornly weak labor market.

The Reserve Bank of Australia (RBA) sees the economy growing between 2.00% and 3.00% in 2017 and between 2.50% and 3.50% in 2018. FocusEconomics Consensus Forecast panelists see the economy expanding 2.5% in 2017, which is unchanged from last month’s forecast. For 2018, the panel expects economic growth of 2.8%.

Author:, Economist

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Australia GDP Chart

Australia GDP Q4 2016

Note: Year-on-year changes of GDP in %.
Source: Australia Bureau of Statistics and FocusEconomics calculations.

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