I noted yesterday that Tim Toohey of Goldman is forecasting just 0.2% growth for the June QTR national accounts out next week. Westpac is out with a GDP preview today:
Domestic demand (Q2 f/c 0.2%qtr, 0.1%yr): Another weak quarter. Demand was flat over the past year, a moderation from annual growth of 1.1% in Q1.
Household consumption (Q2 f/c 0.4%): Retail sales were flat in Q2, consolidating after a 2.0% spike in Q1. Note though that the national accounts quarterly estimates of retail spending cansurprise by differing from those in the retail trade survey. Vehicle sales advanced in the quarter, up by about 1% following a 3% pullback in Q1. Spending on services is likely to remain restrained.
Dwelling construction (+1.6%): Renovation work bounced back in Q2, up 5.6%, after a seven quarter downturn. This more than
offset a dip in new dwelling construction, centred in Victoria, where approvals have weakened since mid-2012.
New business investment (–0.8%): Declines were broadly based across asset classes. Non-residential building work fell by 1.4% in Q2, following recent softer commencements; infrastructure activity fell, edging 0.1% lower as mining investment crests; equipment spending was down again, falling 1.2%; and we expect intellectual property products spending to fall as mining exploration is wound back.
Public spending (flat): Public spending is volatile around a weak trend. We expect a flat quarter, with investment down and consumption soft. This would have spending down a hefty 4.4% on a year earlier (subject to revisions).
Net exports (0.2ppts): Export volumes advanced again, increasing by an estimated 2.5%, centred on an uptrend in iron ore and coal shipments as capacity expands. Import volumes rose in Q2, up an estimated 1.6%, partially reversing a 3.5% drop in Q1 driven by a slump in capital imports.
Private non-farm inventories (flat, +0.2ppt contribution): Inventories were particularly soft in early 2013, declining by 0.6%. While we don’t expect a repeat in Q2, patchy demand points to inventory levels tracking sideways. This would have inventories adding to growth, +0.2ppts (subject to revisions).
These estimates all look well reasoned to me, except for inventories which have been falling heavily in the NAB survey and the general weakness suggests to me that destocking is ongoing. If inventories were to fall, Westpac would find itself in the vicinity of Tim Toohey. That’s my bet.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
