MNI ANALYSIS: Australia Household Spend Up On Savings Drain

--Q2 GDP Accelerates But Nominal GDP Down

By Sophia Rodrigues

     SYDNEY (MNI) - Australia's second quarter GDP accelerated

quarter-on-quarter due mainly to a rise in public capital formation and increase

in household spending, but once again the spending came came in good part from

household savings rather than income. 

     The data show the Reserve Bank of Australia is likely to keep monetary

policy accommodative for longer despite Governor Philip Lowe's signal Tuesday

that the cash rate could be expected to move towards the neutral rate of 3.5%

when jobs and inflation data show more progress.

     The Q2 GDP outcome of +0.8% q/q and +1.8% y/y, however, fell short of MNI

median forecast of +0.9% and +1.9% but was well within the range of economists'

forecasts.

     Nominal GDP, which is a indicator of income, fell 0.1% q/q but rose 6.3%

y/y. Compensation per employee rose 0.7% q/q but average compensation per

employee fell 0.1%, data published Wednesday by the Australian Bureau of

Statistics show.

     The household savings rate fell to 4.6% in Q2 from a revised 5.3% in Q1.

Over the past five quarters, gross disposable income has grown at an average

rate of 0.5%, consistently lower than the growth in the household final

consumption expenditures (HFCE), the ABS said.

     HFCE rose 0.7% q/q and contributed 0.4 point to Q2 GDP, higher than the

0.2-point contribution made to Q1 GDP. Household expenditures were driven by

rises of 1.5% on food  expenses, 1.3% on insurance and financial services and

0.5% on rent and other dwelling services. The main offset was electricity, gas

and other fuel, down 3.7%, and purchases of vehicles, down 1.1%.

     Government final consumption expenditures rose 1.2% q/q in Q2, slightly

faster than the 1.0% gain in Q1 and made a 0.2-point contribution to GDP, the

same as in Q1.

     Overall, the strongest contribution to Q2 GDP came from public gross

capital formation, as public investment rose 11.9% and included the acquisition

of the recently completed Royal Adelaide Hospital from the private sector. 

     Private investment, however, fell, driven by a 7.7% drop in non-dwelling

construction that was partially offset by a 2.9% rise in machinery and

equipment.

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

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