Australia: GDP likely to rise 0.5% in Q2 – ANZ

Analysts at ANZ suggest that after the release of key partial indicators of Australian economy this week, they are expecting a rise in GDP of 0.5% q/q in Q2, which would see annual growth edge down to 1.4% which would be the slowest pace since the GST.

Key Quotes

“This is a slightly better outcome than we thought last week. The main new pieces of information since our preliminary forecast last week are stronger government spending, net exports and profits, which more than offset the weakness in inventories.”

“The headline growth number, however, belies the underlying weakness in the economy. Private demand looks to have fallen by 0.3% q/q in Q2 following a similar fall in Q1, to be down 0.6% over the year. The mainstay of economic growth at the moment is public demand, which looks to have contributed 1.6ppt to annual growth. This highlights the difficulty for the government and the RBA, in generating measures to support the economy when public spending is already the key driver of growth.”

“GDP growth, at +0.5% q/q and +1.4% y/y, would be lower than the RBA expected a month ago.”

“In the GDP report tomorrow, the focus will once again be on the household indicators – consumption and income. Soft retail sales volumes (+0.2% q/q) point to relatively modest growth in consumer spending. While retail spending accounts for only around 30% of consumption, the earlier fall in house prices and ongoing soft income growth will have weighed on consumer spending in the quarter. We will also be watching the GDP measure of average wages. Preliminary data suggest this is likely to pick up a little, but continue to show only modest growth.”