From Westpac’s Q2 National Accounts preview:
- The Australian National Accounts, to be released on Wednesday September 3, will provide an estimate ofeconomic activity in the June quarter.
- We expect the second quarter of 2014 to be a soft one for GDP, following a strong start to the year. Central to this profile is a lopsided performance by resource exports, with Q2 to see some payback for a burst in Q1.
- GDP growth is forecast to be 0.4%qtr, 3.0%yr in Q2. This follows an outcome in Q1 of 1.1%qtr, 3.5%yr.
- Net exports swing from a positive contribution of 1.4ppts to a 0.7ppts subtraction in the June quarter. Exports consolidated at a high level in Q2, following a 4.8% jump in Q1, when unseasonably benign weather conditions resulted in fewer disruptions to coal and iron ore production than normal for this time of year.
- A catch-up in imports reinforces this net exports profile. Imports rose by a strong 3.7% in Q2, following a fall in excess of 5% over the previous five quarters. Of note, services, including overseas travel, rebounded strongly, with Easter falling in April rather than March.
- Inventories (including farm) are expected to add +0.8ppts in Q2, after a –0.6ppts in Q1, with imports contributing to stock rebuilding. This 1.4ppts turnaround partially offsets a 2.1ppts deterioration in net exports.
- Domestic demand growth printed at 0.3%qtr in Q1 and we expect a repeat of this in Q2. Flat public demand, as governments focus on budget repair, is a headwind. Also, business investment is trending lower as the mining investment boom transitions to the production phase.
- However, household demand (i.e. consumption + dwelling activity) strengthened over the past year, with record low interest rates triggering a strong housing upswing. In Q1, household demand increased by 0.9%. Annual growth lifted to 3.2%, up from a low of 1.4% at the start of 2013. In Q2, we expect 0.6%qtr, 2.9%yr.
- Importantly, we expect the recent mismatch between the retail sales survey and total consumer spending in the national accounts to continue in the June quarter, as discussed in more detail below.
- We expect nominal GDP to contract in the June quarter, falling by 0.2%. This would be the first negative print since 2009, associated with the global recession. The terms of trade fell sharply, down an estimated 5%, on lower iron ore and coal prices. Total company profits are expected to fall by 4% or more in the quarter.
- For the RBA, key considerations are the momentum of the economy heading into the September quarter and further progress in the transition of the economy towards strength in the non-mining sectors. On these fronts, recent evidence is encouraging, notably positive business surveys for July and the most recent ABS capex survey.
GDP is a craps shoot but I reckon Westpac is being a bit optimistic on consumption and inventories. We could easily print zilch on the headline number. Full report here.