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The Australian GDP declined by 0.5 per cent quarter-on-quarter, bringing annual growth down to 1.8 per cent, which according to ANZ is a “shockingly weak” result.
In its latest Australian Economic Update, ANZ said that although recent data pointed to a low outcome, the degree of weakness in the report is “surprising”.
“For us, the surprise has come from particular weakness in the income measure of GDP (-0.7 per cent q/q) with small business profits down particularly sharply, as well as broad-based weakness in the production measure of GDP,” Felicity Emmett, head of Australian economics, commented.
Ms Emmett added that ANZ believes the results overstate the underlying weakness in the economy, however some of the weaknesses are likely to be reversed in the next quarter.
“Housing is likely to rebound given the amount of work in the pipeline, resources exports should grow strongly given ongoing expansion in LNG supply, and profits growth should pick up supported by higher commodity prices and a bounce back in small business profits,” she said.
“Moreover, consumer spending (which accounts for around 55 per cent of GDP) looks likely to pick up given the acceleration in retail sales over the past couple of months,” she added.
Ms Emmett remarked that overall the result suggests some loss of momentum in the economy, which is consistent with the slowdown in employment growth.
“Total business investment remains particularly weak, with mining investment continuing to be a substantial drag, housing construction is clearly at or close to a peak, and growth in consumer spending has slowed sharply from the rates seen late last year and early this year,” she elaborated.
Ultimately, Ms Emmett noted that while the RBA is “likely to be disappointed” with the apparent loss of momentum in the economy, she expects that it is likely to retain its easing bias for some time yet, “despite market enthusiasm for rate hikes”.