March 08, 2019

Australian GDP fails to meet expectations

Australian GDP growth failed to meet expectations when the December 2018 Quarter results were released on 6 March 2019. Seasonally adjusted Australian GDP increased by 0.2 percent from the September 2018 quarter. This was below expectations of the Reserve Bank of Australia, which had forecast a 0.6 percent increase for the December 2018 quarter. Market expectations were also expecting a greater increase following the 0.3 percent gain in the three months prior.

The increase in GDP was driven by increases in Household final consumption expenditure which increased 0.4 percent in the quarter and general government expenditure that increased 1.2 percent led by national government expenditure which increased 2.8 percent. Increased household expenditure came from increases in health expenditure (up 1.9 percent) and clothing and footwear (up 2.2 percent) and offset a decline in electricity gas and other fuels (down 2.4 percent).

Recent reports of a cooling Australian housing market were reflected in gross fixed capital formation decreasing by 1 percent. Private investment fell 1.3 percent in the quarter driven by a 3.4 percent decrease in dwellings and ownership transfer costs which fell 6.6 percent. 

On an annual basis, GDP was up 2.3 percent against the December 2017 quarter. This was also below expectations. In its February 2018 Statement on Monetary Policy the Reserve Bank of Australia had forecast GDP to increase by 2.75 percent. This February forecast was itself adjusted down from a forecast of 3.5 percent in its previous Statement on Monetary Policy in November 2018.

The Australian population increased by more 0.4 percent over the period. As a result, per capita GDP fell by 0.2 percent, this has seen Australia fall into a per-capita recession for the first time in 13 years after a 0.1 percent decrease in the September 2018 quarter.

What this means for New Zealand

These Australian results could signal future negative impacts on the New Zealand Economy. GDP cycles in New Zealand and Australia have become highly correlated in recent years and the business cycles between Australia and New Zealand have become more synchronised. Underpinning these interdependencies, Australia is New Zealand’s largest trading partner, trans-Tasman investment and migration flows are considerable and financial markets appear highly integrated.

Following the announcement, the New Zealand dollar saw an increase against the Australian dollar to 96.12 Australian cents from 95.91 cents.

Following the announcement, both the New Zealand and Australian dollars fell against the US dollar. The New Zealand dollar fell from 68.01 US cents at 8am on March 6th to 67.61 US cents at 5pm.

New Zealand’s December 2018 quarter GDP figures are expected to be released on 21 March 2019.