Lot’s of GDP downgrades flowing through. Westpac as good as any:
Net exports
Net exports subtracted a sizeable 0.7ppts from Q1 GDP, a larger than expected drag (mkt median -0.4ppts & Westpac -0.3ppts)
Export volumes disappointed, -1.6% vs f/c flat
Weather disruptions have had a more material impact than previously thought.Resource exports -4.6%, with falls in iron ore, coal, gold and metals. Only other mineral fuels (including LNG) rose in the quarter.
Manufactures and ‘other’ also fell. Partially offsetting this were gains in services and rural goods.
Import volumes were as anticipated, +1.6%qtr, +7.9%yr.
Consumption goods +3.4%qtr, +8.4%yr and capital goods, +2.3%qtr, +20.6%yr.
The extent of strength of imports is something of a puzzle given the apparent weakness of domestic demand. Some inventory rebuilding is one factor.Current account
The current account balance disappointed, printing at a deficit of $3.1bn in Q1, only a $0.4bn improvement on -$3.5bn for Q4.
The trade surplus rose to $9.2bn from $6.1bn, with the terms of trade up 6.6% on higher commodity prices.
However, the net income deficit jumped to $12.4bn from $9.6bn in Q4 as higher returns in mining are paid in part to foreign investors.
Public demand
Public demand expanded in Q1, but at a slower rate than anticipated, +0.5% vs f/c 0.8%.
Consumption was strong +1.0%qtr, as public sector job numbers grow to provide additional services.
Investment fell back 1.9%, coming off the back of strong quarter. Still the uptrend in investment remains in place.
Implications for Q1 GDP
We have downgraded our Q1 GDP growth forecast to 0.2%qtr, 1.6%yr – lowered from 0.4%qtr.
The GDP headline figure is an average of three estimates – expenditure, income and production.
The GDP expenditure measure appears to be quite weak, at 0.0% on our calculations.
The arithmetic is domestic demand 0.3%, inventories +0.4ppts and net exports -0.7ppts.
Weather disruptions, hitting home building and exports, have had a significant impact.
We expect consumer spending to be relatively subdued, at 0.5%qtr.
The GDP income measure appears to be more positive at around 0.6%qtr.
We have opted to gravitate our GDP average forecast towards our view on expenditure, for which we have more but still incomplete information.
We don’t bother with forecasts. It’s a mug’s game with so many variables. A negative print is odds-on.
