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.


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