AUSTRALIA DATA: Strong Domestic Demand Growth To Keep RBA Cautious

Q3 GDP was lower than expected at 0.4% q/q & 2.1% y/y after an upwardly revised 0.7% q/q & 2.0% y/y. However, the details are a lot stronger than the headline with domestic demand rising 1.2% q/q to be up 2.6% y/y, the strongest since Covid-impacted Q1 2022. The softer GDP print was due to a 0.5pp inventory detraction, largest since Q2 2023, which may reflect stronger demand driving a drawdown and which may be followed by a rebuild. 

Australia contributions to q/q GDP pp

Source: MNI - Market News/ABS

• In November, the RBA forecast Q4 GDP growth of 2.0% y/y. Excluding revisions, this would require a 0.5% q/q rise and so growth is developing as it expects. However, it has been around the bank’s estimate of trend and today Governor Bullock said that while the output gap size is uncertain, it probably has closed, which increases risks to inflation from stronger demand. Thus, rates are likely on hold for some time and domestic demand strength poses an upside risk to inflation.
• Private consumption rose 0.5% q/q, concentrated in essential spending, and contributed 0.3pp to quarter GDP. The savings rate rose 0.4pp to 6.4%. A 1.7% q/q increase in disposable income supported expenditure.
• Public consumption rose 0.8% q/q contributing 0.2pp.
• Investment was strong up 3.0% q/q contributing 0.7pp with 0.2pp from the public sector and 0.3pp from private machinery & equipment, which rose 7.6% q/q. Data centre development was a major driver.
• Strong import growth is consistent with stronger domestic demand and especially capex. Imports were up 1.5% q/q & 4.2% y/y after Q2’s 2.5% y/y. Exports were also solid at +1.0% & 3.6% but not enough to prevent net exports detracting 0.1pp.
• The statistical discrepancy made a -0.1pp contribution after Q2’s +0.2pp.
• GDP per capita was flat but up 0.4% y/y. 

Australia GDP vs domestic demand y/y%

Source: MNI - Market News/ABS