Australia: Annual growth rebounds to 2.8% - Westpac
Australia has to wait longer than all but New Zealand for its GDP data but there’s always plenty for markets despite the long wait, according to Sean Callow, Research Analyst at Westpac. Growth in the Jul-Sep quarter was 0.6%, helping annual growth rebound to 2.8%, a high since Q2 2016, but the Aussie dollar fell in response, he further adds.
“While 0.6% was short of 0.7% consensus, the main concern was in the details. On the positive side, business investment is finally on an upswing, as the drag from the mining unwind fades and spending elsewhere ticks up. But the stunning disappointment was the miserable 0.1% rise in household consumption.”
“This was the smallest rise since Q4 2008 – the depths of the GFC – and well below population growth. With employment growing strongly and Q2 a sharp 0.8% gain, we can hope for a better reading in Q4. But annual consumption growth of 2.2% is well below the RBA forecast of 2.75% for FY17/18. The household saving rate of 3.2% is in stark contrast to the 10.4% in Q4 2008, showing that consumption in recent quarters has actually been supported by Australians saving less.”
“The squeeze on incomes and overhang of high debt was already a “continuing source of uncertainty” for the RBA in Tuesday’s statement. But it is unlikely to be a game-changer for the bank into 2018. The next meeting is not until February, when the RBA will update its forecasts. Markets are not considering a rate cut next year, though pricing for a 2018 hike continues to ease towards Westpac’s view for another year of 1.5%, with a hike by end-2018 now priced only about 50/50.”
“Australia’s data in the week ahead shouldn’t cause the Aussie much damage. But the US dollar could rally if the FOMC accompanies its fully expected funds rate rise to 1.25-1.50% with an upbeat view for the economy in 2018. Another robust payrolls report and Congress’s great haste to pass some version of a tax cut bill would only reinforce the growing support for the US dollar from the short end of the curve.”