Australia | Mar 02 2011
– GDP up 0.7% qoq and 2.7% yoy in line with consensus
– Mixed result suggests offsetting weakness in Q1
– No reason for RBA to move until the second half
By Greg Peel
Australia's gross domestic product grew by 0.7% in the December quarter over the September quarter and 2.7% over the December quarter 2009. The result represents a solid increase on the September quarter growth rate of 0.1% (revised down from 0.2%). The numbers were largely consistent with economist forecasts.
Despite coming in on forecast, the breakdown of GDP components was not exactly what economists had been expecting prior to this result and this week's earlier individual fourth quarter data.
We know that net exports did not contribute to growth in Q4 which leaves only investment in resource sector development as a significant driver. Last week's capital expenditure data showed strong capex intentions which is what the RBA is emphasising as the reason the next rate movement will, ceteris paribus, be up. However business investment in Q4 rose a less than expected 0.5%. What puzzled economists was a reported fall in infrastructure spending of 0.8% when this week's construction spending data showed an increase of 10%.
The same thing happened last quarter.
Westpac, nevertheless, points to rising work pipelines as a guarantee construction will rise in future, and the equipment spending growth rate was a more healthy 4.7%.
There was little surprise in consumer spending rising by a subdued 0.4%. The weakness in consumer spending and ex-resources business investment is what is keeping the RBA on the sidelines given the offset to resource sector investment and strong commodity prices.
Total domestic demand rose by only 0.3% which leads Westpac to suggest a mixed result for 2010's year-end.
The swing factor was inventory growth, which added a solid 0.8 percentage points to GDP growth. It was inventory build-up which effectively “saved” the Q4 GDP result, economists suggest, and that's worrying. While Q4 featured a good deal of wet weather which goes some way to explaining why stock was not moving, the weather in early Q1 has been substantially worse. The risk is that inventories remain on the shelves and the component will reverse in Q1.
The result has done nothing to suggest to the RBA that inflation will rise above the current 2.75%, suggests ANZ. ANZ economists had already assumed no rate rise until the second half of 2011 and Westpac has joined that chorus on the strength, or lack thereof, of today's figures.
The market nevertheless has kept jumping at shadows and many have been expecting a rate rise as early as May or even April. Those expectations should also now shift further out on the timeline.