Australia: Q4 net exports up 0.2ppts & public demand surged by 1.4% - Westpac

Research Team at Westpac, notes that in Q4, Australian net exports broadly met expectations, up by +0.2ppts while the public demand surprised to the high side, increasing by 1.4% on a jump in investment. 

Key Quotes

“Net exports made a small positive contribution to growth in the final quarter of 2016, +0.2ppts. That was broadly as expected (mkt median 0.2ppts, Westpac +0.1ppts).”

“Exports volumes advanced, increasing by 2.2%, including a 2.6% rise in goods (led by resources and rural goods) and a 0.6% lift in services, boosted by the still relatively low AUD. Over the past year, export volumes grew by 8.9%, with goods +8.9%yr and services +8.6%yr.”

“Import volumes rose by 1.4% in the quarter, with goods up 1.2% and services rising 2.3%. Over the year, imports increased by 3.3%, with goods up 3.7% and services 1.8%.”

“The terms of trade jumped 9.1% in the quarter, a little below our estimate of 10.2%, as commodity prices rebounded sharply off recent lows. For the 2016 year, the terms of trade rose 15.6%, boosting national income.”

“The current account deficit narrowed to only $3.9bn in the December quarter, down from $10.2bn in Q3. The trade balance moved sharply into surplus, +$4.7bn from a deficit of $3.5bn. The net income deficit widened a little, to $8.5bn from $6.7bn, as higher export earnings in part went to foreign owners. The current account deficit as a share of GDP was only 0.9% in the December quarter 2016, the smallest deficit since 1980. That is a sharp improvement on a 5.6% of GDP deficit for the final quarter of 2015.”

“Q4 public demand, +1.4%

Public demand surprised to the high side on a jump in investment, +7.8%. Overall public demand increased by 1.4% in the quarter, well in excess of our expectations (f/c 0.4%), and will add 0.3ppts to growth in the quarter.”

“Implications for Q4 GDP

• We have upgraded our Q4 GDP growth forecast to 0.9%qtr.
• Annual GDP growth lifts to 2.1% from 1.8% in Q3.
• Domestic demand expanded by 0.8% in Q4 we estimate, with gains in: housing, 1.3%; public demand, 1.4%; business investment, 0.3%; and consumer spending, +0.6% (which assumes a fall in the savings rate to fund increased spending).
• Net exports add 0.2ppts, offsetting a 0.2ppts drag from inventories.

We expect the statistical discrepancy to add 0.1ppt to growth (this is because our estimate of GDP on an income basis is stronger than that for GDP on an expenditure basis, with income strength centred on a sharp jump in company profits).”