Australia: Growth surpasses expectations in Q4 2019 but full-year growth falls to 28-year low
GDP expanded 0.5% quarter-on-quarter in seasonally-adjusted terms in Q4, following a revised 0.6% quarter-on-quarter increase in the third quarter (previously reported: +0.4% quarter-on-quarter), according to figures released by Australia’s Statistical Institute (ABS) on 4 March. The result surpassed expectations that the wildfires would led growth to decelerate to 0.3% quarter-on-quarter. Moreover, on an annual basis, the economy grew 2.2%, up from Q3’s revised 1.8% (previously reported: +1.7% year-on-year), which marked the strongest expansion in 2019. That said, the fourth quarter’s result brought full-year growth for 2019 to 1.8%, down from the 2.7% expansion clocked in 2018 and the weakest reading in the country’s 28-year run without a recession.
An acceleration in household spending and stronger external sector powered the economy. Private consumption strengthened (Q4: +0.4% qoq; Q3: +0.1% qoq), thanks to lower taxes and interest rates, as well as the recovery in the housing market. Additionally, a drop in the saving ratio reinforced the government’s efforts to boost spending through the introduction of tax cuts, while restocking contributed positively to growth. On the other hand, fixed investment contracted (Q4: -1.0% qoq; Q3: +0.6% qoq), on the back of a significant drop in dwelling investment and as souring business sentiment hit private investment, while government spending lost further pace (Q4: +0.7% qoq; Q3: +1.1% qoq).
The external sector, meanwhile, supported the economy to a larger extent than in Q3. Exports flatlined in Q4 (Q3: +0.5% qoq), supported by strong foreign sales of coal, travel services and non-monetary gold but restrained by shrinking other services exports, while imports dropped 0.5% in Q4, after growing 0.3% in Q3, due to shrinking investment activity.
This year, growth should gain some traction, thanks to stronger domestic demand. A pick-up in wage growth, coupled with a tight labor market and modest inflation, is expected to support household spending, while investment should benefit from lower interest rates and a rebound in the housing market. However, the coronavirus and reigniting trade tensions cloud the outlook.