Q3 domestic demand also hit a 2-year low 0.3% q/q, & down to 2.7% y/y – as Victoria slowed (0.2% q/q, 4.3% y/y), & WA eased (0.4%, -0.6%), but NSW bounced (1.1%, 3.7%). Domestic demand was driven by booming public demand (1.5%, 4.5%); adding 0.4%pts to GDP (& a large 1.0%pts y/y) – as public investment spiked (6.2%, 3.2%), with strong public consumption (0.5%, 4.8%). Worryingly, private demand contracted q/q (-0.1%, 2.1%) – as business investment fell again (-1.9%, -0.7%); & consumption dropped to an equal 6-year low q/q (0.3%, 2.5% after 2.9%); but housing surprisingly lifted (1.0%, 7.1%).
After Q2 GDP surprisingly boomed, & the RBA upgraded to a bullish 3½% in 2018 & 2019, Q3 slumped to 0.3% q/q & 2.8% y/y, hit by soft consumption, despite collapsing savings, as wages slumped. Ahead tighter credit should see falling home prices & fading wealth effect to slow spending. We downgrade GDP in 18/19/20 to 3.0%/ 2.7%/2.5% and expect material RBA downgrades. We still see rates on hold through 2020, but can’t rule out a cut if weak data continues next year, especially CPI & wages.
The full text of this article is available to MacroBusiness subscribers
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.
