Today’s GDP result has come in much weaker than had been expected and as a result the A$ has fallen sharply and we are hearing much more talk of possible further rate cuts in 2015.
The third quarter result saw GDP rise just 0.3% for a 2.7% increase over the year (the markets had been expecting +0.7% q/q and +3.1% ann). The driver of what growth there was has been the export sector with Net Exports adding 0.8ppts to growth. The weakness has come from investment, both public and private, which subtracted 0.2ppts and 0.5ppts respectively from growth. Household consumption has held up reasonably and added 0.3ppts (as it has done for each of the past 3 quarters).
This slower than expected growth will have inevitably worsening impacts on the fiscal budget and we can expect to see the projected deficit when Joe Hockey releases his MYEFO later this month. Nominal GDP (which is the basis on which tax receipt projections are based) fell 0.1% in the quarter and may now struggle to reach a 1.5% increase over the 2014-15 financial year; the 2014-15 Budget assumed nominal GDP growth over the year of 3%.
Queensland Final State Demand fell 1.4 over the quarter and has now been negative on an annual basis for the past 3 quarters, currently sitting at -1.8% y/y.