Next week Australia releases December quarter national accounts. I will repeat my quarterly enjoiner that predicting GDP is a fool’s errand (which is why I don’t do it). There are simply too many opaque and moving parts to make it anything other than a guess. But the major banks all tempt fate with forecasts so find below Westpac’s effort which is as good as any and better than most.
The Australian National Accounts, to be released on 6 March, will estimate activity conditions prevailing during the October to December months of 2012.
- Indications are that growth was modest, extending a loss of momentum apparent from the second quarter.
- Q4 GDP growth is forecast to be 0.6%qtr, 2.9%yr. This follows quarterly gains of 1.3% in Q1, 0.6% in Q2 and 0.5% in Q3. Annual growth ticks lower to 2.9%, from 3.1% (subject to the net impact of revisions).
- Labour market softness and subdued imports point to a sub-par Q4 outcome. Aggregate hours worked declined by 0.1% in the quarter, to be 0.4% lower over the year. Import volumes rose only 0.7%, on our estimate.
- Consumer spending ended the year on a soft note, retail sales were broadly flat. Business investment was cut, at a time of challenging global and domestic conditions. Inventories were most likely a small negative for growth.
- Mining capex spend, up 72% in the year to Q2, lost considerable momentum, rising just 0.9% in Q3 and by 2.6% in Q4. The sector was squeezed by a slump in global commodity prices and by rising costs.
- The positives were: net exports, adding a forecast 0.4ppts on a solid rise in exports; a likely partial rebound in public demand; and, more fundamentally, new dwelling construction up 2.1%, in response to lower interest rates.
- Australia’s national income was hit by a declining terms of trade, down an estimated 2% in the quarter and 16% lower over five quarters.
- Domestically, fiscal policy is contractionary. The household sector remains focused on paying down debt and trade exposed sectors are confronted by a high dollar.
- The mining boom is set to transition over the next couple of years from an investment surge to a jump in exports. As mining investment losses altitude the non-mining sectors will need to gather momentum to fill the gap. Lower interest rates will help to facilitate this rebalancing.
- The risk is that this is not a smooth transition, a risk compounded by uncertainty in an election year. A plus is that the international environment has improved, for now. However, we expect world growth to falter late in 2013.
er20130301BullAusGDPpreviewQ4 (1)
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