MNI ANALYSIS: Australia GDP Shows H'holds To Stay RBA Concern

--Q3 GDP Slows Mainly On Lowest Household Consumption Growth Since Q1 2005

By Sophia Rodrigues

     SYDNEY (MNI) - Australia's third quarter GDP growth rate slowed

quarter-on-quarter due mainly to a deceleration in household consumption growth

and a fall in public investment but the year-on-year growth rate accelerated to

around its trend rate.

     Both the q/q and y/y outcomes fell short of MNI median forecasts but the

y/y growth rate met the Reserve Bank of Australia's expectation for growth to

pick up to around its trend pace.

     The biggest worry in the data from the RBA's point of view will be

household consumption, which grew at the lowest rate since Q1 2005. While the

household saving rate rose for the first time since Q2 2016, the 3.2% savings

rate in Q3 is still very low. It reinforces the RBA's concern about slowing wage

growth, as reflected in the cash rate statement on Tuesday, when the RBA dialed

up its strategic effort to manage wage expectations.

     Data published by the Australian Bureau of Statistics Wednesday showed Q3

GDP rose +0.6% q/q and +2.8% y/y, compared with MNI median forecasts for +0.7%

q/q and +3.0% y/y. The 2.8% y/y growth rate falls within the definition of trend

growth, which is around 2.75% to 3.0%.

     The household savings rate rose to 3.2% in Q3 from a revised 3.0% in Q2 as

household income rose 0.5% and outpaced the 0.2% rise in the current price index

for household final consumption expenditures (HFCE). 

     In seasonally adjusted terms, HFCE rose 0.1% q/q and contributed 0.1

percentage point to Q3 GDP, well below the strong 0.5-point contribution made in

Q2. Household expenditures were driven by rises of 1.0% on food  expenses, 1.3%

on insurance and financial services and 0.6% on rent and other dwelling

services. But these were mostly offset by falls in health related expenses

(-1.0%), food services (-0.9%) and recreation and culture (-0.6%). 

     Government final consumption expenditures rose 0.2% q/q in Q3, slowing

sharply from +0.9% in Q2, and contributed just 0.2 percentage point to GDP. 

     Dwelling investment fell 1.0% q/q, twice the fall of 0.5% in Q2, and

subtracted 0.1 percentage point from Q3 GDP. This outcome is in line or slightly

worse than the RBA's expectation that dwelling construction will no longer make

a contribution to GDP. Still, the strongest contribution to Q3 GDP came from

private gross capital formation, as fall in dwelling investment was offset by a

18.4% rise in non-dwelling construction.

     One positive in the data was the rise in compensation of employees, which

grew 1.2% q/q, with average compensation rising 0.3%. This was slightly better

than the results of +0.7% and -0.1%, respectively, in Q2 GDP data. The RBA

watches this data but also other indicators of employee compensation in the

national accounts data.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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