Australia: Net exports weaker than expected, Q1 GDP revised f/c to 0.2%qtr - Westpac

Andrew Hanlan, Research Analyst at Westpac, explains that Australian net exports were weaker than expected at -0.7ppts in Q1 while public demand was up +0.5%qtr and revised Q1 GDP is f/c to grow at 0.2%qtr, 1.6%yr.

Key Quotes

“Net exports

• Net exports subtracted a sizeable 0.7ppts from Q1 GDP, a larger than expected drag (mkt median -0.4ppts & Westpac -0.3ppts)
• Export volumes disappointed, -1.6% vs f/c flat
  Weather disruptions have had a more material impact than previously thought.
• Import volumes were as anticipated, +1.6%qtr, +7.9%yr.
• The extent of strength of imports is something of a puzzle given the apparent weakness of domestic demand. Some inventory rebuilding is one factor.”

“Current account

• The current account balance disappointed, printing at a deficit of $3.1bn in Q1, only a $0.4bn improvement on -$3.5bn for Q4.
• The trade surplus rose to $9.2bn from $6.1bn, with the terms of trade up 6.6% on higher commodity prices.
• However, the net income deficit jumped to $12.4bn from $9.6bn in Q4 as higher returns in mining are paid in part to foreign investors.”

“Public demand

• Public demand expanded in Q1, but at a slower rate than anticipated, +0.5% vs f/c 0.8%.
• Consumption was strong +1.0%qtr, as public sector job numbers grow to provide additional services.
• Investment fell back 1.9%, coming off the back of strong quarter. Still the uptrend in investment remains in place.”

“Implications for Q1 GDP

• We have downgraded our Q1 GDP growth forecast to 0.2%qtr, 1.6%yr – lowered from 0.4%qtr.
• The GDP expenditure measure appears to be quite weak, at 0.0% on our calculations.
• The arithmetic is domestic demand 0.3%, inventories +0.4ppts and net exports -0.7ppts.
• We expect consumer spending to be relatively subdued, at 0.5%qtr.
• The GDP income measure appears to be more positive at around 0.6%qtr.
• We have opted to gravitate our GDP average forecast towards our view on expenditure, for which we have more but still incomplete information.”