Australian GDP sees a boost from net exports

Despite the strong performance of US equities, Asian markets got off to a rocky start after the big miss in the US ISM PMI threw some questions up around the inevitability of the December Fed rate hike.

Source: Bloomberg

However, the strong Australian Q3 GDP numbers and the positive open of the Chinese cash markets helped pare back some of the earlier losses.

The ISM PMI miss saw a 0.4% pullback in the DXY dollar index, seeing a big rally in a range of currencies. The Aussie dollar had rallied to US$0.7340 by 6am AEDT, boosted by expectations for a strong GDP number and a weaker US dollar. The fact that the Aussie dollar began to ease after the GDP release indicates that much of the rally expected the strong Q3 GDP number.


Australian GDP has put in a very strong performance in the third quarter considering the further decline in capital expenditures, the big swoon in commodities, and a selloff in global equities over China fears. The big rally in the ASX and the Aussie dollar yesterday was clearly pricing in a better-than-expected GDP result. The current account data yesterday showed a much stronger than expected 1.5% contribution to GDP from net exports, lifting expectations for Q3 GDP.

As expected, capital expenditures took 0.6% from GDP, this was largely cancelled out by the 0.5% addition from consumption. While consumption’s 0.7% quarter-on-quarter (QoQ) is still weak compared to its long-term average, it has clearly been steadily gaining throughout the year as it grew at its fastest rate since Q4 2014. It is uncertain how much of a one-off the big windfall from net exports will be; the huge volumes of iron ore exports, despite their low prices, clearly helped balance the accounts. But the Australian dollar also saw touched record lows during the quarter, boosting demand for a range of different exports and services.

The Q3 GDP figures may have been better than many expected, but they are consistent with the improvement in a number of economic statistics throughout the quarter. The non-mining sectors of the economy have responded well to the lower Aussie dollar and its corresponding increased price competitiveness.

The evidence for this turnaround is made most plainly in the strong performance of employment and credit growth. The recently released ABS aggregate financing data showed that private credit is now growing at 6.7% year-on-year, its fastest rate since December 2008.

Employment growth (despite some reservations over the consistency of the data) is also indicating a marked turnaround in the fortunes of the Australian economy.  Employment is now growing at 2.7% year-on-year, its fastest rate since November 2010. Consistency at elevated levels of employment growth will no doubt be key, but a few more months of +2% year-on-year employment growth could see us saying goodbye to the +6% unemployment rate in this cycle – an even better performance than the Reserve Bank of Australia forecasts.


Despite a weak start, today’s strong performance of the Big Four Banks has saved the index from a far worse performance. Most sectors were down on the day with industrials and healthcare seeing the worst losses. Nonetheless, investors are happy to pick up yield again today with Telstra and the Big Four all comfortably in positive territory on the day.

Throwing some concern into the health of the domestic economy was another FY16 earnings warning, this time from Spotless Group. The previously privately owned Spotless downgraded their earnings forecast, seeing the stock crash 34.6%.

Cardno also returned from their trading halt after a capital raising, seeing them lose 22.6%. The performance of these two stocks no doubt added significantly to the 1.7% loss seen by the industrials sector.

JB Hi-Fi lost 5.4% and Harvey Norman lost 2.4% as an embattled Dick Smith announced massive discounts to clear its stock, putting in doubt retailers’ profits during the highly important Christmas sales season.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.