UBS has downgraded its Q4 GDP outlook following yesterday’s “disastrous” 3.1% decline in construction activity. UBS now expect a GDP print of just 0.3% with risks tilted to the downside. UBS has also reiterated its call that the RBA will be forced to cut rates in November 2019:
Overall, Q4 construction surprised materially to the downside… this data is so weak – after ~flat retail volumes, & a likely net exports drag – we cut our Q4 real GDP forecast to 0.3% q/q & 2.5% y/y (was 0.4% q/q & 2.6% y/y), & still have downside risk; further below consensus (~0.7%/2.9% y/y), & the RBA’s recently downgraded forecast of 2¾% y/y (implying 0.5% q/q). With industry data today on Jan-19 owner-occupier home loans dropping another 2.2% m/m, our credit tightening thesis is playing out quickly, & we reiterate our non-consensus view the RBA will cut in Nov-19, with risk of earlier easing.
A per capita recession is baked in.
