Australia: Sharper than anticipated bounce in Q4 GDP - Westpac

Analysts at Westpac note that the Australian economy rebounded in the December quarter 2016, with a sharper bounce than anticipated as the Q4 GDP was 1.1%, after a -0.5% while annual growth lifted to 2.4% from 1.9%, but is still down from 3.1% in June.

Key Quotes

“GDP expanded by 1.1% in Q4, exceeding expectations (market median 0.8% and Westpac 0.9%). Annual growth strengthened to 2.4% from 1.9%, but is still down from the recent high of 3.1% June.”

“Recall that the economy contracted in Q3, -0.5%, the first decline since the floods of March 2011 and before that the GFC impact in Dec 2008. The surprisingly weak result in Q3 reflected a number of one-offs, including bad weather, and the disruption from the July Federal election.”

“Since then, the election has passed, RBA rate cuts in 2016 are having some impact, the mining investment drag has eased, global commodity prices have surged and global conditions have improved.”

“Domestic demand grew by 1.2% in Q4, more than reversing a 0.4% dip in Q3, to be 2.1% above the level of a year ago. All components of domestic demand advanced in Q4. That includes business investment, which rose 1.9%, following 12 consecutive quarterly declines.”

“The outlook for 2017 remains constructive. RBA rate cuts in 2016 are having some impact, housing finance has rebounded. The mining investment drag is waning. The Federal election is behind us – removing some uncertainty around public policy. The labour market is expected to improve, as suggested by forward indicators. Higher commodity prices are boosting national income and there will be a supply response, in coal for example. Global conditions have improved, supported by very expansionary monetary policy globally.”