Australia: Q1 GDP revised lower to 1.8% YoY - UOB

Economist at UOB Group Lee Sue Ann assessed the recently published GDP figures in Australia for the October-December 2019 period.

Key Quotes

“Australia’s GDP expanded by 0.5% q/q in 4Q19, from a revised 0.6% q/q (0.4% q/q previously) reading in 3Q19, and above expectations of 0.4% q/q. The annualized rise was 2.2% y/y, both above the 2.0% y/y expected, and the 1.8% y/y expansion in 3Q (which was revised higher from 1.7%). It was also the strongest growth pace seen since the third quarter of 2018. In the details, though, private demand remained weak, with consumption growth coming in at 0.4% q/q, offsetting declines in public (-0.4%) and private investment (-1.1%).”

“The latest figures, however, pre-date the worst of the Australian summer bushfires and also did not include any fallout from the COVID-19 outbreak. The Treasury had estimated that the bushfires might take 0.2pp from GDP, whilst the Organization for Economic Cooperation and Development (OECD) warned that COVID-19 could hit Australian economic growth by at least 0.5pp.”

“As such, both the bushfires and COVID-19 are set to dent further the already-fragile sentiment, with tourism and education the first sectors to take a hit. As far as Australia’s tourism is concerned, the Chinese travel ban has exacerbated a decline prompted by the bushfires.”

“Although the low interest rate environment and recovering housing market will support the consumer sector, concerns about the spread of the coronavirus may weigh on domestic hiring going forward, and we now expect the unemployment rate to climb over 5.5% over the coming months. That would put additional downward pressure on wage growth.”

“Against the current backdrop, we have downgraded Australia’s GDP growth estimate to 1.8% y/y in 1Q20, from 2.5% y/y in 1Q20. Accordingly, we have also downgraded Australia’s full-year growth outlook this year to 2.1%, down from our previous estimate of 2.4%. This is a tad below the Reserve Bank of Australia (RBA)’s forecast in February of average growth of 2.2%.”