Australia: Soft GDP reading masks underlying improvement - Wells Fargo

According to analysts from Wells Fargo, the headline miss in Australia GDP data is largely a function of an inventory drawdown. 

Key Quotes: 

“According to data released earlier today, the Australian economy picked up speed in the second quarter but, the 0.8 percent growth achieved during the quarter (not annualized) was a tick shy of the 0.9 percent that had been expected. Still, at an annualized rate, the 3.3 percent growth marks a more than doubling of the 1.3 percent growth reported in the first quarter, and is also faster than the 2.5 percent average quarterly growth rate achieved in 2015 and 2016.”

“The soft print hides what we consider to be a marked improvement in growth fundamentals. Consumer spending, for example, quickened modestly versus the prior period which is consistent with three consecutive monthly gains in retail sales during the quarter. A more demonstrable example of the improvement is in gross fixed capital formation which increased 1.5 percent (not annualized) the second-fastest quarterly pop since 2012.”

“The primary culprit for the miss in second quarter GDP growth in Australia was a drawdown in inventories. Coming on the heels of a modest inventory build in the first quarter, the result was a big drag on headline GDP which masks the improvement in domestic demand.”

“With inflation still low and wobbly fundamentals in housing, we still see the RBA on hold well into 2018.”