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Australia Q4 GDP disappoints market expectations on weakness in business investment, net exports

Australia’s gross domestic product (GDP) for the fourth quarter of 2017 disappointed market expectations, following weakness in business investment and net exports, while household consumption grew solidly. The result highlights the still patchy nature of growth and the subdued nature of inflationary pressures in the economy.

GDP was up a modest 0.4 percent q/q in Q4, bringing annual growth down to 2.4 percent. For 2017 as a whole, GDP rose 2.3 percent, which is the slowest annual average rate of growth since 2013. The result was in line with ANZ research’s forecasts but a touch below market estimates and the RBA’s forecast published in the February Statement on Monetary Policy. 

Growth was held down in the quarter by weakness in business investment. After four straight rises, it fell 1.0 percent q/q. The weakness was driven by a solid fall in mining investment (-5 percent), which wasn’t sufficiently offset by strength elsewhere.

The non-mining investment was essentially flat, although annual growth remains solid at +11 percent. Dwelling investment was also weak, posting a fall of 1.3 percent q/q. Elsewhere, household consumption growth was strong, rising 1.0 percent q/q, following an upwardly revised 0.5 percent rise in Q3 (previously +0.1 percent q/q), while public spending grew a strong 1.1 percent. Inventories were flat, while net exports subtracted 0.5ppt from growth, in line with the Balance of Payments report.

For policymakers, the number is likely to be a little disappointing, given H2 2017 growth has stepped down to 2.1 percent from 2.7 percent in H1. While the pick-up in consumption is reassuring, it needs to be considered in the light of the ongoing downtrend in the saving rate.

"We are reluctant at this stage to extrapolate the weakness into 2018 and continue to expect a strengthening of growth this year. The weakness in wage growth confirms that the RBA is likely to be on hold for some time yet," ANZ Research commented in its latest report.

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