From Westpac:
Q4 net exports: 0.0ppt
Net exports are trending higher, but with volatility quarter to quarter.
In Q4, net exports were flat, following a chunky 1.6ppts positive contribution in Q3
The Q4 outcome was softer than expected (mkt median and Westpac 0.3ppts)
Export volumes grew by 0.6% in the quarter, a fraction softer than anticipated, (Westpac 0.8%).
Services performed strongly, advancing 1.6%qtr to be 8.3% higher than a year ago, a positive development highlighting that the lower dollar is providing a boost to the economy.
Import volumes provided the surprise, up 0.6%, whereas we anticipated a decline of 0.5%. Over the past year, imports increased by a modest 1.2%, reflecting soft domestic demand and the impact of a lower currency.
The terms of trade fell sharply, declining by 3.2%, to be 12% lower than a year ago, as commodity prices tumbled on rising supply and softer 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.
Q4 public demand, +1.4%
In Q4, public demand advanced, up 1.4%, more than reversing a dip in Q3. This exceeded our expectations for a 0.7% gain.
Investment was the source of volatility, with a soft start to the 2015/16 financial year in Q3 and a rebound in Q4.
Implications for Q4 GDP
We have revised down our forecast for Q4 GDP to 0.3%qtr, 2.5%yr, lowered from 0.5%qtr
This takes on board the downside surprises from inventories and net exports.
On our figuring, domestic demand is weak in the quarter, edging only 0.1% higher.
The mining investment downturn remains a key headwind, with total business investment expected to contract by 3.5% in Q4.
The terms of trade fall of 3.2%qtr will contribute to an insipid read on nominal GDP, forecast to be 0.1%qtr, 1.8%yr.
