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Australia's GDP weaker than expected

The Australian dollar fell below $0.7060 after Q4 Australian GDP came in weaker than expected, confirming an economic slowdown.

Australia’s Gross Domestic Product (GDP) missed estimates, coming in softer than expected at 2.3% year on year, with forecasts of 2.5% year on year. Quarter on Quarter growth came in at 0.2%, according to the Australian Bureau of Statistics (ABS)

Growth in the September quarter, originally reported at 0.3%, remained the same.

IG market analyst, Kyle Rodda said markets are reflecting the results.

‘If today's GDP is truly a sign of things to come, the notion the labour market will continue to tighten from here and lift wages sufficiently to support the RBA's growth base case, is questionable. Markets are reflecting this view and think the RBA will need to cut rates at some point in 2019’ Mr. Rodda said.

Australian dollar falls

The Australian dollar dropped significantly in response to the GDP release. At time of writing AUD/USD dropped below $0.7060.

The estimates had already been revised down over the course of the week, and the top line, annualized figure still missed the consensus forecast.

‘Perhaps of concern too is that government spending was the greatest contributor to GDP last quarter -- a bad sign for the private sector and the ultimate engines of economic growth.

The AUD has taken a tumble on the back of the release, as traders further increase bets that the RBA will have to cut interest rates at some point this year. The ASX is down modestly too.’ Mr Rodda said.

Household spending

Chief Economist for the ABS, Bruce Hockman, said: ‘Growth in the economy was subdued, reflecting soft household spending and a decline in dwelling investment. The approvals for dwelling construction indicate that the decline in dwelling investment will continue.’

ABS figures show, household spending grew by 0.4%, reflecting a continuation of modest spending in recent quarters, while investment in dwellings fell 3.4%. Household spending added 0.2 percentage points to economic growth, lower than expected that was largely driven by weak spending.

Mining investment fell in the quarter as significant projects transitioned from the construction to the production phase. This is reflected in oil and gas production, which grew 7.7%.


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.

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