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Australia GDP Q4 2018

Australia: Growth slows further in Q4 on shrinking private investment and falling exports

Australia’s economy slowed further in the fourth quarter, dragged down by notable contractions in fixed investment and foreign sales, according to figures released by the Australian Bureau of Statistics (ABS) on 6 March. GDP expanded 0.2% quarter-on-quarter in seasonally-adjusted terms in Q4, following a 0.3% increase in the third quarter. The result slightly undershot market analysts’ expectations of a 0.3% expansion. On an annual basis, the economy grew 2.3%, down from Q3’s 2.7% and again falling short of market expectations of a 2.5% increase. That said, the reading brings growth for 2018 as whole to 2.8%, above 2017’s 2.4% expansion, thanks to a strong H1.

On the domestic front, the deceleration was prompted by a sizable contraction in fixed investment. Fixed investment shrunk a notable 1.0%, contrasting Q3’s 0.6% increase: A significant fall in dwelling investment due to the ongoing downturn in the real estate market more than offset an increase in machinery and equipment investment. The drop in fixed investment came on the back of a sizable contraction in private investment, while public investment rose, albeit modestly. On the other hand, inventories added 0.2 percentage points to GDP growth, contrasting a large decrease in stocks in the prior quarter, which had translated into a subtraction of 0.3 percentage points from growth. Consumer spending accelerated marginally (Q4: +0.4% quarter-on-quarter; Q3: +0.3% qoq), owing to healthy job gains and moderate inflation, but it nevertheless remained weak overall due to plunging house prices, unremarkable wage growth and tightening credit conditions. Government spending also gained steam in the fourth quarter, rising 1.8% (Q3: +1.2% qoq), fueled by robust expenditure by the national government.

The external sector’s contribution to growth swung to minus 0.2 percentage points in Q4 from plus 0.3 percentage points in Q3, owing to a plunge in exports. Exports weakened significantly, dropping 0.7% in Q4 (Q3: -1.0% qoq), due to a contraction in foreign sales of rural goods. Imports, meanwhile, swung from a 1.0% contraction in Q3 to a marginal 0.1% expansion in Q4. Purchases from abroad of both consumer and intermediate goods rose, more than offsetting a drop in imports of services and capital goods.

This year, stronger non-mining business investment, on the back of favorable financing conditions and robust commodity exports, will drive the economy. However, growth will likely moderate due to shrinking residential and mining investment, and as a prolonged correction in real estate prices coupled with a high debt stock and moderate wage growth restrain consumer spending. Downside risks stem from disappointing growth in China and political uncertainty ahead of May’s elections.

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