The Australian economy is likely to have expanded 0.5 percent quarter-on-quarter in the second quarter, according to an ANZ research report. This would see annual growth edge down to 1.4 percent, which would be the slowest rate since the GST. Stronger government spending, net exports and profits offset the softness in inventories.
However, the headline growth number belies the underlying softness in the economy. Private demand appears to have dropped by 0.3 percent quarter-on-quarter in the second quarter after a similar drop in the first quarter, to be down 0.6 percent year-on-year.
Public demand is the main driver of the economic growth, which appears to have added 1.6 percentage points to the annual growth. This underlines the difficulty for the government and the RBA, in generating measures to underpin the economy when public spending is already the key driver of growth.
In tomorrow’s release, the focus might be on the household indicators again – consumption and income. Weak retail sales volumes indicate towards relatively modest growth in consumer spending. While retail spending accounts for just about 30 percent of consumption, the earlier fall in house prices and ongoing weak income growth will have been a drag on consumer spending in the quarter.
The Q2 GDP data is somewhat dated. The second half of the year should see much better consumer spending reflecting the stimulus coming from lower interest rates and tax refunds. Rising house prices may also have an impact. But the Q2 GDP report is likely to show that the starting point was lower than the RBA expected. And the Bank’s concerns over the international backdrop would only have risen since the August meeting”, added ANZ.
