GDP Driven By Net Trade, Inventories & Investment Strong Drag

Q4 GDP surprised to the downside rising 0.5% q/q and 2.7% y/y down from 0.7% and 5.9%, the second consecutive quarter of slower growth but still in line with the RBA forecast. Growth was driven by the external sector at the end of 2022 with net exports making a 1.1pp contribution and domestic demand neutral. The weaker result was driven by inventories which detracted 0.5pp from quarterly growth consistent with the sharp drop in imports. The RBA will see the soft internal demand result as a comfort and hope that as a result some of the heat will come out of domestically-driven inflation.

• Implicit price deflator showed strong Q4 inflation rising 1.6% q/q to be 9.1% y/y. Importantly the domestic component rose 1.4% q/q and 6.6% y/y, the highest since Q1 1990
• Private consumption rose 0.3% q/q after 1% the previous quarter. This measure includes goods and services, and the latter growing 1.2% q/q. Households used more of their income in Q4 with the savings rate declining to 4.5% from 7.1% in Q3. Government spending took a step up rising 0.6% q/q after 0.2%.
• The weakness in domestic demand was driven by investment. Private GFCF fell 1.7% q/q and detracted 0.3pp from growth. The decline was broad based across machinery & equipment and dwelling & non-dwelling construction.
• Export volumes rose 1.1% q/q while imports fell 4.3% after +2.5% and +4% respectively. This resulted in annual growth of 7.8% y/y and 12.1%. Exports were driven by continued commodity shipments and higher tourist arrivals - trade remains solid.
• Q3 GDP was revised up to 0.68% q/q from 0.65%, which when rounded resulted in 0.7% vs 0.6%. The annual Q4 rate faced significant negative base effects as Q4 2021 rose 3.7 % q/q.

Source: MNI - Market News/ABS