UBS: Australian private sector in recession

Via the excellent George Theranou comes the fruition of Recessionberg:

Q3 GDP slowed to 0.4% q/q after 0.6%; but edged up to 1.7% y/y after 1.6%
Q3 real GDP unexpectedly slowed to just 0.4% q/q (UBS 0.5%; mkt 0.5%), albeit after an upwardly revised 0.6% in Q2 (was 0.5%). Hence, the y/y ticked up to 1.7% (UBS: 1.6%, mkt: 1.7%) – after Q2 was revised up to 1.6% (was 1.4%) – albeit still the ~weakest since the GFC, well below ‘trend’ of ~2½%, & ~flat in per capita terms.

Domestic demand weakened to 0.2% q/q & a 4-year low 0.9% y/y; despite booming public demand (1.7%, 5.2%) adding a very large 0.4%pts & 1.2% y/y to GDP; as public consumption lifted (0.9%, 6.0%), & public investment rebounded sharply (5.4%, 2.1%). Worryingly, private demand fell into recession (-0.3%, -0.4%). Within this, business investment contracted again (-2.1%, -1.7%); as mining relapsed (-7.8%) but non-mining bounced (1.2%). Consumption (0.1%, 1.2%) slumped to the ~worst since the GFC. The housing downturn got worse (-1.7%, -9.6%). Elsewhere, inventories ~steadied (0.1%pts, -0.3%pts); but net exports added solidly (0.2%pts, 1.1%pts).

Q3 GDP remains soft, especially consumption; RBA still likely cut rates in Feb-20
Q3 real GDP remains soft, with little improvement so far from rate cuts & tax cuts, as households either save more or repay debt; seeing private demand fall into recession. We reiterate our below consensus GDP forecasts of 2.1% in 2020 (mkt: 2.4%, RBA 2¾%) & 2.5% in 2021 (RBA 3%). For the RBA, Q4 GDP needs to rise ~0.7% q/q to hit their 2.3% y/y forecast, albeit their Feb-20 SOMP may be ~unchanged. However, with weaker consumption, unemployment will remain too high & CPI below target. Overall, we remain more dovish than consensus, & still expect a 25bp rate cut in Feb-20 as likely (assuming no material fiscal stimulus in MYEFO), & then another 25bps cut to 0.25% by mid-2020; albeit the latter remains conditional on more global central bank easing.


David Llewellyn-Smith

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.

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