Australia | Jun 04 2007
By Chris Shaw
Again Australian economic data have come in stronger than expected, with today’s release of business indicators beating market expectations. Sales volumes recorded a 1.4% increase for the March quarter, gross profits rose 7.6% against a forecast of 3.0% and inventories rose 1.4% against estimates of a 0.2% increase.
TD Securities global strategist Stephen Koukoulas notes the numbers imply there is upside risk to estimates for GDP when growth figures are released on Wednesday, a view shared by others in the market.
As an example, ANZ Banking Group senior economist Riki Polygenis had forecast quarterly growth of 1.0% but now concedes this may prove conservative, while Koukoulas takes the same view despite forecasting a 1.1% increase.
Westpac Bank senior economist Andrew Hanlan notes the inventory outcome is likely to add around 0.5% to GDP against expectations for a 0.2% contribution, so the GDP forecast of Commonwealth Bank senior economist Michael Workman for a 1.5% increase for the March quarter may prove closer to the mark.
Overall the experts agree the data are indicative of ongoing strength in the Australian economy, Polygenis noting the strong sales growth is boosting profits and this in turn is providing a boost to both employment and investment. Importantly, the bank notes overall figures show a broadening of corporate profitability beyond just the mining sector, Polygenis pointing out over the past three quarters mining sector profits have fallen but other sectors have stepped in to pick up the slack.
According to the Commonwealth Bank’s Workman the data are not supportive of further rate hikes, as he expects data in coming periods to show inflation remains under control. In the view of Koukoulas the key is economic data continue to come in stronger than expected, which clouds the picture in terms of further Reserve Bank of Australia (RBA) action.
He suggests the RBA should now focus on leading indicators rather than lagging ones, as the economic data coming through mean the inflation risk remains squarely to the upside. He also expects the Aussie dollar to strengthen as the economy continues to perform, suggesting the Aussie dollar could reach as high as US86c in coming months.