Australian economy past the trough: HSBC

December 4, 2019

SYDNEY - In a comment on latest Australian GDP figures, an HSBC global research report says growth is still sluggish, but past the trough. The bank expects a further cut in the cash rate to 0.50% in Q1 2020.

 "Real GDP growth was 1.7% y-o-y in Q3, as expected, which is up from 1.6% y-o-y in Q2, suggesting a gentle recovery," the report says.

"Public demand and exports supported growth, while housing construction and business investment both fell.  Consumption was weak, as households chose to save much of the recent policy-driven boost to their incomes."

HSBC says real GDP rose by 0.4% q-o-q in Q3 (the market and HSBC expected 0.5%), to be 1.7% higher y-o-y (in line with the market and HSBC). Growth in Q2 2019 was revised up from 0.5% q-o-q to 0.6% q-o-q.

Household consumption rose by only 0.1% q-o-q to be 1.2% higher y-o-y. Dwelling investment fell by -1.7% q-o-q and was down -9.6% y-o-y.

Business investment fell by -2.0% q-o-q, and was down -1.7% y-o-y. Public demand rose by 1.1% q-o-q and 4.8% y-o-y. The quarterly change in inventories added 0.1% to growth. Overall domestic demand (GNE) was up 0.3% q-o-q and 0.6% y-o-y.

Net exports rose in the quarter, with export volumes up 0.7% q-o-q (3.3% y-o-y) and import volumes down -0.2% q-o-q (-1.5% y-o-y). Net exports added 0.2ppts to GDP in the quarter, and 1.1ppts to year-ended growth.

Nominal GDP was up 1.1% q-o-q and 5.5% y-o-y. The terms of trade rose by 0.4% q-o-q and was up 7.8% y-o-y.

Real gross domestic income rose by 0.5% q-o-q and was up 3.6% y-o-y. Real net national disposable income per capita rose by 0.5% q-o-q, and was up 3.3% y-o-y.

The household saving ratio rose from 2.7% to 4.8%. Household disposable income rose by 2.5% q-o-q and 5.1% y-o-y, driven by a 6.8% q-o-q drop in income tax payments following the implementation of the low and middle income tax offset. Compensation of employees rose by 1.1% q-o-q and 5.0% y-o-y.

"If growth is to get back to trend, the unemployment rate is to fall and inflation to eventually get back to target, real GDP growth will need to pick up pace,"  HSBC said.

"For this to happen, households will need to start opening their wallets and spending more."

"Businesses will also need to start to feel confident to make investment plans. Today's numbers show business investment fell by 2% in the quarter and was down 1.7% over the year.

"Non-mining business investment has levelled out in recent quarters and mining investment is yet to start to pick up. (ATI).