GDP Disappoints – Headline And Composition

Q3 GDP came in lower-than-expected at 0.2% q/q but the annual rate was higher at 2.1% y/y, in line with Q2. The composition of growth was soft given it was driven by government spending/investment and inventories. Non-dwelling construction was a bright spot though in the private sector. Slower private growth and the first rise in productivity since Q1 2022 should reassure the RBA that monetary policy is working.

• Revisions and the subsequent base effects boosted Q3’s annual rate. Q3 2022 GDP was revised down to 0.2% q/q from 0.7%, and Q4 2022 and Q1 2023 were revised higher. Despite this the RBA’s Q4 forecast can be achieved/undershot with a realistic reading of 0.4% or less.

Source: MNI - Market News/ABS

• Domestic demand rose 0.5% q/q but has slowed from Q2’s 0.9% and Q1’s 0.7%, which should please the RBA. Household consumption was disappointing but the ABS said it was because government subsidies reduced services spending on electricity. Spending was flat to be up only 0.4% y/y, it has been lacklustre for 4 straight quarters but not contracting yet. Government spending grew 1.1% q/q and contributed 0.2pp.

Source: MNI - Market News/ABS

• The household savings ratio fell to 1.1% due to higher tax liabilities and interest payments. While it’s still positive, it’s the lowest since Q4 2007. Governor Bullock has said that aggregate savings buffers are still untouched but that may change in the quarters ahead.
• Total GFCF grew 1.1% q/q and 5.9% y/y with growth from public corporations remaining very strong. Private capex rose a solid 1.2% q/q and 4% y/y driven by a 3.3% increase in mining construction. Dwellings rose only 0.2% q/q & fell 0.3% y/y and machinery & equipment fell 0.5% but is up 7.7% y/y.
• Inventories contributed 0.4pp which the ABS said was due to falling mining exports but this followed a large 1.2pp Q2 detraction. Net exports were a 0.6pp drag, with exports down 0.7% q/q but imports up 2.1%. Services trade also detracted.