Westpac revises up GDP forecast on trade data

Advertisement

From Westpac’s Andrew Hanlan:

Q1 GDP, we have rounded up our forecast to 0.7%qtr, 2.1%yr, from 0.6%qtr, 2.0%yr.

Q1 net exports: +0.5ppts

Net exports will make a sizeable positive contribution to Q1 GDP growth of 0.5ppts.
That exceeds expectations (mkt median 0.0ppt, Westpac +0.1ppts).

Export volumes surprised, up 5.0% vs Westpac f/c 2.8%.
Import volumes were broadly as expected, +3.0% vs Westpac f/c 2.7%

The terms of trade surprised to the low side, falling -2.9%qtr, vs f/c -1.2%. Over the year, the terms of trade slumped by 11.4%.

Export prices fell, down 2.9%qtr, as global commodity prices tumbled.
Import prices were flat in the period.

Q1 public demand, +0.1%

Public demand remains weak, inching only 0.1% higher in the quarter.
That was a little softer than we anticipated, (Westpac +0.4%).

Public investment disappointed, falling 0.9% in the quarter, while public consumption grew by a subdued 0.4%, as anticipated.

Implications for Q1 GDP

We have rounded up our forecast for Q1 GDP growth to 0.7%qtr, 2.1%yr, up from 0.6%qtr, 2.0%yr.

The key surprise was upside on net exports.

Output growth in Q1 will be driven by net exports, +0.5ppts, and inventory rebuilding, +0.4ppts.

Domestic demand overall most likely remained weak in the quarter, growing by a forecast 0.1%qtr, 1.0%yr.

A drop in business investment, led lower by the mining sector, and broadly flat public demand are the key headwinds.

A strong upswing in home building is the key positive.

We look to the national accounts for a clearer picture on the consumer.

We anticipate a lukewarm rise in consumer spending, in the order of 0.6% to 0.7%, following a 0.9% rise in Q4.

Lastly, we anticipate a negative statistical discrepancy, with the income and production measures of GDP expected to record slower growth than the expenditure measure.

And for the ironic headline of the day:

ScreenHunter_7557 Jun. 02 13.21

And therein lies the idiocy of using GDP as the broad gauge of the economy. GDP rises, courtesy of rising export volumes, whilst national income falls as we sell our goods for less.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.