Australian Q4 GDP: a preview

By Andrew Hanlan Senior Economist, Westpac

Output likely flat, at a forecast 0.0%qtr, 1.2%yr. Domestic demand weakly positive, at a forecast 0.2%qtr. Hours worked an estimated –0.9%qtr.

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The Australian National Accounts, to be released on Wednesday March 6, will provide an estimate of economic activity for the months October through to December of 2023.

We expect a flattish quarter for national output, a view informed by significant weakness in hours worked and likely declines in both goods imports and goods exports, as well as a softening of private business surveys.

We assess that the domestic demand growth pulse is likely weakly positive for the quarter.

We expect quarterly output growth to print at 0.0%. That would see annual growth slow from 2.1% to 1.2%. The six-month annualised growth pace slows abruptly from 2.0% for the first half of 2023 to only a tepid 0.4% over the second half, indicating that output moved broadly sideways over this period.

These output outcomes are tracking well below annual population growth, which is around a brisk 2½%, inflated temporarily by the national border reopening effect.

The arithmetic of our GDP forecast is: +0.2% for domestic demand, net exports +0.1ppt and total inventories -0.3ppts (which largely reverses a +0.4ppts from inventories last period).

Domestic demand detail is expected to include; consumer spending +0.1%, housing –4.2%, business investment, +1.1%, and public demand +0.4%.

Australia is navigating a marked economic slowdown in the face of high inflation, sharply higher interest rates, additional tax obligations for households and global uncertainty.

The slowdown accelerated in the second half of 2023 as it broadened from flat consumer spending to the rest of the economy. Home building was particularly weak in the December quarter and business investment decelerated sharply from a 14% annualised pace over the first half of the year to an estimated 3.4% annualised pace over the second.

Firms are adjusting to soft demand by cutting back on hours worked rather than job shedding. In the September quarter, hours worked fell by –0.6% in the National Accounts, associated with a 0.2% rise in output, indicating a lift in productivity. For the December quarter, we expect hours worked in the National Accounts to contract by around a sizeable –0.9%.

An update on household income and saving flows will be a key focus of the National Accounts. Households are still adding to savings, but the pace of new saving has slowed and is below average, with the ratio now at 1.1%, down from 7.0% a year ago. While nominal wage incomes have been growing strongly, the drags from interest rates, tax and inflation translated into sharp falls in real household disposable income, which printed –1.3%qtr, –4.3%yr for the September quarter.

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Australian Q4 GDP: a preview

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