From Westpac:
Q1 net exports: 1.1ppts
Net exports are trending higher, but with volatility quarter to quarter.
In Q1, net exports will add 1.1ppts to quarterly GDP growth. That is after a flat impact in Q4.
Over the past year, net exports added 1.9ppts.
Export volumes jumped in the quarter, +4.4% (vs Westpac f/c 2.4%) to be 6.6% above the level of a year ago.
The mining investment boom is paying dividends, as expanding capacity drives rising shipments of iron ore, LNG and coal.
In addition, services are surging, up 6.1%qtr, 14.1%yr. That is the strongest annual growth since 1995 (excluding the Sydney Olympics one-off in 2000).
The lower Australian dollar is providing a major tailwind to the key education and tourism sectors, evidence that the economic transition post the mining investment boom is underway.
Import volumes edged 0.8% lower to be 2.0% below the level of a year ago, as capital goods imports weaken.
The terms of trade declined further in Q1, -1.9%qtr, -11.5%yr, returning to more sustainable levels.
Commodity prices have corrected, falling to historic lows on rising supply and soft demand from China.
This double digit fall in the terms of trade is a material negative income shock to the Australian economy, constraining spending power.
Once again mining profits and company profits were hit by lower commodity prices.
Q1 public demand, 0.6%
In Q1, public demand advanced by a modest 0.6%, broadly as expected (Westpac f/c 0.5%). That is after surprising strength in 2015, +3.7%yr.
Consumption rose by 0.9% in the quarter, while investment declined by 0.7%. That mix is a little surprising, we had expected investment to move ahead, supported by a lift in transport infrastructure work in NSW.
Implications for Q1 GDP
We have revised up our forecast for Q1 GDP to 0.7%qtr, 2.8%yr, upgraded from 0.6%qtr
Exports – resources and services – was the key growth engine in the quarter.
On our figuring:
* inventories will be a small drag – centred on a farm and public authorities reversing the surprising strength in Q4.
* domestic demand is broadly flat, after a 0.4% rise in Q4, with a more modest outcome across each of the components and with the mining investment downturn still a major headwind.
* the statistical discrepancy is a negative – that is, we expect the Income measure of GDP to be softer than the Expenditure estimate.
Information around the consumer is of key interest to policymakers and is a key uncertainty.
We expect consumer spending to grow by 0.6% in the quarter, moderating from a 0.8% rise in Q4.
Wage income growth is a constraint and we note that hours worked rose by only 0.1% in the quarter, following a 0.9% increase in Q4.
As for nominal GDP, we now expect 0.3%qtr, 2.1%yr.
That would be a weak result, highlighting the hit from the falling terms of trade and softness in prices across the broader economy, as evident in the Q1 CPI.
The GDP deflator is -0.4%qtr on our figuring, with the GNE deflator flat.
