From Westpac:
Q2 net exports: –0.2ppts
Net exports are trending higher, supported by the mining boom and the lower dollar, but with volatility quarter to quarter.
In Q2, net exports corrected following a well above positive contribution in the initial quarter of 2016.
Net exports subtracted 0.2ppts off growth in the June quarter, broadly meeting our expectations (mkt median flat, Westpac -0.1ppt).
That follows a 1.1ppts contribution in Q1. Over the past year, net exports added a hefty 2.2ppts to growth.
Exports advanced by a more modest 1.3% in the period, following a 3.1% rise in Q1, to be 9.6% above the level of a year ago.
For Q2, goods exports were +1.4%qtr, 10.4%yr and services were +0.8%qtr, 6.3%yr.
Fewer weather disruptions early in 2016 boosted shipments of coal and iron ore, with some payback in Q2.
Import volumes rebounded, up 2.7%, more than reversing a 1.9% decline in Q1, to be 0.5% below the level of a year ago.
Imports have been generally soft, as capital imports decline with the winding down of mining investment. In Q2, consumption goods and intermediate goods advanced.
The terms of trade, in a break with the recent past, increased in the June quarter, up 2.4%. That follows 9 quarters of decline.
Commodity prices having corrected of late, retreating from historic highs. However, prices bounced off their lows in the June quarter.
The lift in the terms of trade will boost incomes in the quarter and support nominal GDP growth.
Q2 public demand, +2.7%
In the June quarter, public demand surged, up 2.7%. We were looking for an improvement, but this far exceeds our expectation for a 1% increase.
This will see public demand add around 0.6ppts to Q2 GDP, whereas we anticipated a 0.2ppts contribution.
Public investment did rebound, consistent with an emerging upswing, as state governments commit to new projects.
Investment rose by 6.3%, whereas we anticipated a 3% rise.
Public consumption (over 80% of public demand) was the big surprise, up 1.9% in the one quarter. Historically, annual growth is around 3%.
It may be that there was a pre Federal election effect, with national non-defence consumption up 5% in the quarter!
At the state level (which accounts for 60% of the total) the gain was 1.3%.
Implications for Q2 GDP
We have revised up our forecast for Q2 GDP to 0.5%qtr,3.3%yr, upgraded from 0.4%qtr.
Recall that annual growth was 3.1% in Q1, which is above trend, judged to be around 2.75%.
Domestic demand growth is a forecast 0.6%qtr in Q2, with annual growth holding at 0.9%.
Information around the consumer (55% of the economy) is of key interest to policymakers and is a key uncertainty.
We expect consumer spending to grow by a modest 0.6% in the quarter, moderating from a 0.7% rise in Q1, against the backdrop of a soft spot in the labour market, following the jobs overshoot in 2015.
Annual consumer spending would be a solid but not strong 3.0%.
As for nominal GDP, we now expect 1.2%qtr, with annual growth lifting to a still weak 2.9% from 2.1% – the historic average is 5.6%.
The GDP deflator is +0.7%qtr on our figuring, boosted by the terms of trade rising by 2.4%. In recent quarters, the GDP deflator has been negative as the terms of trade fell and given a general lack of domestic inflation pressures.
