Australia: Message behind today’s Q4 GDP report - Nomura

Australia’s Q4 GDP rose by 0.4% q-o-q, 2.4% y-o-y, a fraction below consensus and Nomura’s expectations (0.5% q-o-q), although in line with the balance of risks, while Q3 GDP was revised up by one-tenth of a percent to 0.7% q-o-q, notes Andrew Ticehurst, Research Analyst at Nomura.

Key Quotes

“First, we judge that the national accounts represent a poor set of numbers and should be something of a “call to arms” for politicians and policymakers of all persuasions. In the face of solid global growth, a record low cash rate and above-average government spending (4.1% y-o-y), Australia only managed to generate below-trend real GDP growth of 2.4% in 2017. Moreover, the downside to solid population and employment growth was seen in a decline in GDP per hour worked and flat GDP per capita, while real net national disposable income per capita (a broad measure of living standards) was basically flat in both quarter-on-quarter and year-on-year terms.”

“Second, inflation measures were somewhat mixed, but do suggest that “the lows are in”, consistent with the sentiment we received from the Reserve Bank of Australia (RBA) yesterday. The private consumption deflator rose by a stronger 0.5% q-o-q (though still up by a moderate 1.3% y-o-y). Nominal unit labour costs (cost of labour per unit of output) rose by 0.6% q-o-q and 2.4% y-o-y, while real unit labour costs (adjusting for general inflation) rose by 0.2% q-o-q and 1.4% y-o-y. However, with total compensation of all employees (the “wages bill” for all employers) rising by 1.1% but employment growth strong in the quarter, average compensation per employee was flat in the quarter and up 1.6% y-o-y.”

“Third, we concede that Q4 growth was held back by temporary delays to coal exports (maintenance work and industrial disputes), so we do expect a stronger Q1 2018 GDP print of around 0.8% q-o-q. We agree with the RBA governor that the path should be up from here, although our GDP forecasts for 2018 and 2019 are a few tenths of a percent below the RBA’s own projections.”

“Fourth, we see little “new news” here for the RBA and today’s data do not alter our market views. The RBA had previously flagged expectations for a softer print, and it too appears to be expecting a stronger Q1 2018.”