Independent Australian and global macro analysis

Monday, December 2, 2019

Net exports and public demand to support Q3 GDP growth

The last of the partial indicators in the lead-up to tomorrow's Q3 National Accounts were released by the ABS this morning, which showed that net exports and public demand will contribute to GDP growth in the quarter.  

Balance of Payments - Government Finance  — Q3 | By the numbers
  • Australia's current account surplus surged to $A7.855bn; well past the median forecast of $6.1bn (prior rev: $4.669bn from $5.853bn)
  • The trade surplus lifted to a new record high at $21.065bn in Q3 (prior rev: $19.266bn from $19.896bn)
  • The income deficit narrowed by 10.9% in Q3 (or by $1.596bn) to -$A13.033bn (prior rev: -$14.629bn from -$13.927bn) 

  • Net exports are expected to add 0.2ppt to GDP growth in Q2, which was above the 0.1ppt contribution forecast by markets, but down +0.6ppt in Q2.

  • In the separate Government Finance release, public demand lifted by 1.5% in Q3 to $117.295bn. Overall, the ABS reported public demand was expected to add around 0.3ppt to GDP growth in the quarter.

Balance of Payments - Government Finance — Q3 | The details 

The nation returned to a current account surplus for the first time since 1975 in the June quarter at a revised $4.669bn, which then accelerated by a further $3.2bn over Q3 to $A7.855bn. Driving this result was a $1.8bn rise in the trade surplus to $21.065bn and a $1.6bn narrowing in the income deficit to -$13.033bn.  

The boost in the trade surplus was driven by a 2.1% rise in export earnings, which was led by the volatile non-monetary gold category (+51.2%) and services (+2.0%), though non-rural goods were soft (-0.1%) and rural goods (-3.1%) continued to be impacted by drought conditions. For imports, the total bill was up by 0.8% in the quarter, on increases from consumption goods, intermediate goods, non-monetary gold and services, though capital goods were weak (-4.3%). The ABS estimates that the terms of trade were broadly flat over Q3 (+0.4%) but are still up by around a healthy 8% over the year. In volume terms, exports increased by 0.7% in Q3 to be 3.3% higher over the year. On the import side, volumes fell for the 5th straight quarter (-0.2%) and were down by 1.5% over the year, reflective of a lower Australian dollar and weak domestic demand conditions. In Q3, net exports are expected to add 0.2ppt to activity. 

Government spending net of asset transfers lifted by 1.5% in Q3 to $117.295bn, based on a 0.9% rise in expenditure to $93.553bn and a 3.8% lift in investment to $23.742bn. The ABS reported that the expenditure component is expected to add 0.2ppt to activity in Q3, while investment is likely to have contributed 0.1ppt. 

Balance of Payments - Government Finance — Q3| Insights 

In a similar dynamic to the June quarter, GDP growth in Q3 will be supported by net exports and public demand. This comes at a time of slow growth in household consumption, soft business investment and weakness in residential construction. Overall, GDP growth in Q3 appears to have risen by around 0.6% and 1.8% over the year, which if confirmed in tomorrow's National Accounts would be an improvement from an annual growth rate of 1.4% in Q2.