Net exports and public demand positive for Q3 GDP growth

The last of the partial indicators ahead of tomorrow's Q3 National Accounts were released by the Statistics Bureau this morning, with net exports and public demand set to contribute to GDP growth in the quarter. 

Balance of Payments, Government Finance  — Q3 | By the numbers

• Australia's current account deficit narrowed by $1.368bn in Q3 to -$A10.688bn, which was below the market expectation for a deficit of -$A10.1bn (prior rev: -$12.056bn from -$13.472bn)

• The trade surplus surged by $2.704bn to $A6.607bn for Q3 (prior rev: $3,903bn from $2.812bn)

• Net Exports are expected to add 0.4ppt to GDP growth in Q3, slightly higher than the 0.3ppt contribution forecast by economists (prior: +0.1ppt)

• The separate Government Finance data pointed to public demand contributing around 0.3ppt to the Q3 GDP growth figure; with investment +0.2ppt and consumption +0.1ppt  

Balance of Payments, Government Finance — Q3 | The details 

Australia's current account deficit narrowed over the September quarter from -$A12.056 to  -$A10.688bn driven by a sharp increase in the trade surplus. The balance on goods and services in Q3 surged by $2.704bn to $A6.607bn. Export earnings increased by 3.2% to $A11.098bn driven by higher prices for key commodities; LNG (+12%), coal (+4%) and iron-ore (+3%). Meanwhile, the income deficit widened further in Q3 by $1.162bn to -$A16.911bn. This largely reflects the impact of increased returns paid to foreign-based investors in the nation's mining sector, in which strengthening commodity prices have driven a sharp rise in profitability. 

Over the quarter, export volumes were little changed overall at +0.1%, with goods -1.1% and services +4.5%. However, import volumes declined by 1.5%, reflecting a 2% fall from goods as services were flat. As a result, the ABS reported that net exports were expected to add 0.4ppt to GDP growth in Q3. 

Regarding prices, export prices for goods and services lifted by 3.1% in the quarter outpacing a 2.2% rise in import prices. As a result, the nation's terms of trade increased by around 0.9% in Q3, again reflecting the impact of stronger commodity prices. 


Turning to the Government Finance data, consumption expenditure (from national, state and local governments) lifted by 0.5% in Q3 to $A87.057bn. This component is expected to contribute 0.1ppt to Q3 GDP growth. 

Meanwhile, gross investment in public assets increased by 3.4% in the quarter to $A22.668bn. The ABS reported this was expected to add 0.2ppt to quarterly growth. However, after adjusting for the impact of asset transfers, underlying investment increased by a stronger 5.1% in Q3.      

Balance of Payments, Government Finance — Q3 | Insights 

The nation's trade performance was stronger than anticipated in Q3, with net exports set to make its strongest contribution to quarterly growth since Q1 2016. Stronger commodity prices will also provide a lift to national income in the quarter.

Public demand continues to be a growth driver in the domestic economy and this will continue with a strong pipeline of investment to come from state governments, predominantly in transport-related projects.

At this stage, the median forecast for Australian GDP growth in Q3 is 0.6% and 3.3% in annual terms according to Bloomberg. This would be a slight moderation from Q2 where growth was 0.9%q/q and 3.4%Y/Y .