The Aussie economy grew by a seasonally adjusted 0.3 per cent in the September 2018 quarter, well below median market expectations of a 0.6 per cent print.
Farm GDP has been absolutely smoked in the face of this year’s drought, contracting by more than 8 per cent year-on-year, which contributed to the soggy result (soggy probably not being the appropriate description given the weather-related challenges in 2018, granted).
The weak quarterly growth for the economy in turn means that the Reserve Bank will revise down its previously optimistic 3½ per cent GDP growth forecast to 3 per cent forthwith.
The smoother trend figures now show GDP growth at 3 per cent year-on-year, taking Australia’s remarkable economic expansion well into its 28th consecutive year.
Still, the softer result led to a bit of a clamour for an interest rate cut in 2019.
And when a sharp drop in dwelling construction begins to bite it might even play out in time — but the hurdle for a cut remains high and there’s no sign of any mea culpa just yet.
In any case, the recent enormous strength in resources export values might prove to be a get-out-of-jail card, with the RBA’s index of commodity prices holding up (on a monthly average basis, at any rate) and nominal GDP growth tracking at a solid 5.4 per cent over the year to Q3 2018.
Thus while bemoaning the weak GDP result we can at least note that real domestic income (+5.2 per cent) and real national income (+4.4 per cent) grew solidly over the year to September.
Meanwhile Australia’s terms of trade remained well above the long-run average.
If I had to guess – which I don’t, but I will anyway – it’s more likely that the Reserve Bank will hold fire and say a silent prayer that record corporate profits translate into rising wages and household income growth in 2019.
Interestingly, from a markets perspective, the yield on Australia’s 30-year bonds fell to the lowest level on record, touching just 3 per cent (h/t Martin Whetton, ANZ rates guru and strategist), while 10 year bond yields are back under 2½ per cent.
So…that was the damp squib set of Aussie national accounts for the third quarter, then!
Taking a welcome step back from what was a disappointing quarterly result, it was interesting to note Moody’s continuing to report very low mortgage delinquency rates, especially on interest-only (IO) loans.
Loan product switching has very rapidly reduced the stock of IO mortgages by value from around 40 per cent to about 27 per cent of the total, with further declines in the post.
I think it would be fair to say everyone in Australia would feel a bit happier with the world if household debt to disposable income ratios are seen to be falling (or, at least, conclusively not rising).
The IO mortgages reset is one key part of that puzzle and household income growth will in time be another…hopefully.
As for the housing economy itself, quite a lot will depend on what happens with mortgage lending to investors in 2019.
From my recent casual observations of new apartment pre-sales (narrator’s voice: there were no new apartment pre-sales) dwindling dwelling construction and the associated multiplier may ultimately leave a gaping hole in growth forecasts.
But things can change, and perhaps the clouds will clear a little after the final Royal Commission report is handed down on 1 February.
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