Australia’s Q3 GDP progress disappoints, markets now see April begin to charge cuts

By Stella Qiu

SYDNEY (Reuters) -Australia’s financial system within the third quarter grew on the slowest annual tempo for the reason that pandemic, disappointing hopes for a rebound as authorities spending did all the heavy lifting and shoppers remained cautious.

Buyers reacted by pushing the Australian greenback 0.7% decrease to $0.6442. Markets moved to nearly absolutely value in a charge lower subsequent April at 96% from 73% earlier than, and see a 35 foundation factors easing for Could, from 28 bps earlier than.

Knowledge from the Australian Bureau of Statistics (ABS) on Wednesday confirmed actual gross home product rose 0.3% within the September quarter, lacking market forecasts of 0.4%.

Annual progress slowed to 0.8%, from 1.0% the earlier quarter, opposite to expectations of a small choose as much as 1.1%. That marked the slowest tempo since late 2020.

The Reserve Financial institution of Australia had anticipated financial progress would rise to 1.5% by the tip of the 12 months as tax cuts flowed via to households’ wage pockets and shoppers turned extra assured that rates of interest wouldn’t improve once more.

Nevertheless, the surprisingly weak third quarter result’s placing that forecast in jeopardy.

“Put it collectively on stability, the weak GDP numbers argue for an earlier reasonably than later lower,” mentioned Shane Oliver, chief economist at AMP (OTC:AMLTF) that’s tipping a lower in Could.

“The weak point we’re seeing within the financial system, significantly the non-public sector of the financial system, simply signifies that there is nonetheless a excessive probability that we may get a lower in February.”

The ABS mentioned that the enlargement was pushed by public sector spending, including 0.6 share factors to progress, because of a document stage of public funding. Family spending, which accounts for half of GDP, added nothing.

Treasurer Jim Chalmers described the GDP progress as weak and beneath historic averages.

“Our financial system continues to be rising however very slowly. It is weighed down by rates of interest and value of residing pressures and the worldwide financial uncertainties as effectively,” Chalmers mentioned.

CONSUMERS REMAIN CAUTIOUS

The central financial institution has saved rates of interest regular at a 12-year excessive of 4.35% for the previous 12 months and signalled little inclination to ease anytime quickly. The weak outcome suggests financial coverage is doing the job of slowing down demand.

The RBA anticipated shopper spending to choose up from the tax cuts and slowing inflation, however shoppers appear to have stayed cautious for now, though their disposable revenue grew 1.5% within the quarter.

The financial savings charge rose to three.2% as a result of billions of {dollars} in tax cuts, the ABS famous. GDP per capita, nevertheless, dropped one other 0.3%, down for the seventh straight quarter.

Indicators over latest months have pointed to shoppers being in a greater temper. Retail gross sales rose for a 3rd straight month in October as shopper sentiment jumped, and anecdotes from the Black Friday gross sales occasion recommend the momentum probably carried via November.

“We count on GDP progress will slowly choose up within the coming quarters… However this enchancment might be unspectacular, with the financial system set to endure beneath pattern progress within the close to time period whereas capability constraints proceed to chunk,” mentioned Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

The report additionally confirmed extra excellent news on the inflation gauges, with the GDP chain value index all the way down to 2.4% final quarter and progress in actual unit labour prices slowing to an annual charge of 1.6%.

Productiveness – the measure of output per hour labored – dropped 0.5% within the quarter, a troubling signal for the RBA as its forecasts on inflation to return to the goal band of two% to three% in 2026 had been centred on a pickup in productiveness.