Via Westpac:
The Australian National Accounts, to be released on Wednesday September 6, will provide an estimate of economic activity for the June quarter.
The economy slowed over the year to March 2017, with annual growth moderating to 1.7% from 2.5% at the start of 2016. Weather disruptions, uncertainty around the July 2016 Federal election and an undershoot on employment together combined to constrain growth over this period.
The economy grew by only 0.3% in Q1, dented by a 0.3ppt subtraction from home building, impacted by bad weather, and a 0.7ppt subtraction from net exports, as resource exports recorded a rare fall hit by a number of disruptions.
In the June quarter, the economy gained momentum. Conditions have been supported by: a hiring burst, correcting for earlier excessive weakness; a return to more normal weather conditions; a reduced drag from the mining investment downturn; as well as a stronger global backdrop.
Real GDP grew by a forecast 0.7% in Q2. The arithmetic is: domestic demand +1.0%; inventories –0.4ppt; and net exports +0.1ppt.
On domestic demand in Q2 we expect: consumer spending to expand by a brisk 1.0%; home building activity to be little changed, +0.3%; business investment to advance for a third consecutive quarter, +1.2% (the longest run of positives since 2012); and public demand to rise by 1.3%, supported by the upswing in public investment.
Annual GDP growth holds steady at 1.7% in Q2, implying per capita GDP growth is a relatively weak 0.2%. Annual real GDP growth then likely jumps towards 3.0% in Q3 as a -0.4% for Q3 2016 falls out of the calculation.
Firms are hiring again after undue caution in 2016. In Q2, employment increased by 0.9%, including a 1.1% rise in full-time, and hours worked rose by 1.2%. Leading in to Q3, jobs momentum is positive. However, the sustainability of employment gains at this pace is questionable.
On the consumer, accounting for 55% of the economy, the national accounts provide us with a detailed update on spending, saving and incomes. The picture, at least for Q2, should be more positive, driven by rising employment. However, weak wages growth is likely to persist and remains a headwind.
National income, nominal GDP, grew a brisk 7.7% over the past year as commodity prices rebounded from their lows. However in Q2, commodity prices dipped. Potentially nominal GDP was little changed in the quarter.
The Business Indicators survey, on Monday, will provide some partial information on official estimates of incomes for the quarter, including an update on wage incomes and profits, key inputs into our GDP(I) view.
Looking forward to 2018, we expect real GDP growth to slow to a sub-trend 2.5%, with trend at 2.75%, constrained by: a home building downturn, including negative spill-over effects to employment and consumer spending; persistent weak wages growth; the absence of a widespread, strong upswing in business investment; some slowing of global growth, including China post the National Congress; and a retreat in commodity prices from current elevated levels.
The risk is in net exports with the weather-related big coal drop in QLD and the stealing of Korean GDP in Prelude.
