Here’s a couple of views of the December quarter GDP rise of 0.5% quarter on quarter and 2.2% through the year (which was helped by a 0.2% revision upwards to 0.6% growth in the three months to September).
The AMP’s Dr Shane Oliver said:
December quarter GDP data is in line with the RBA’s forecasts but the growth outlook is challenging for Australia given the hit to tourism and education arrivals, especially from China, and more broadly from the coronavirus outbreak.
The RBA’s 2020 forecasts that assume GDP growth to return to 2¾% by the end of the year look way too optimistic. Due the bushfires and coronavirus March quarter GDP growth is expected to be negative and even assuming a rebound in growth in the June quarter we see growth through this year of just 1.5% (which we have revised down from 2% prior to the coronavirus outbreak).
However, there is a rising risk of recession because if the coronavirus outbreak is not contained soon then June quarter growth could be negative as well which would mark the first recession since the early 1990’s recession ended in mid-1991.
We expect that Australian March quarter GDP growth will be negative because of the hit to economy from the bushfires and coronavirus. It is not our base case, but the risk of a recession has increased given the rising threat posed by coronavirus. Yesterday’s 0.25% RBA interest rate cut will assist households with a mortgage and businesses with debt.
But more stimulus is needed – we expect another 0.25% rate cut in April and some fiscal stimulus from the government (starting with support for businesses directly impacted by Covid-19 but eventually turning into a broader fiscal stimulus with measures to boost investment and consumer spending). However if government stimulus does not prove to be enough (or come early enough) to support the economy then the RBA is expected to start an asset purchase program (ie QE) to boost liquidity in the economy.
The NAB’s economic group wrote yesterday afternoon:
Headline GDP rose by 0.5% in Q4 to be 2.2% higher over the year, a moderate result ahead of an expected virus-driven fall in output in Q1. Notwithstanding a significant contribution from the recovery in housing turnover and small improvement in consumer spending, private domestic demand remains weak with falling residential construction and business investment subtracting 0.3ppt from growth.
Net exports and stocks helped offset this weakness.
While the focus of policy-makers has turned to the impact of the coronavirus on both the global and domestic economies, today’s outcome confirms a below trend pace of growth as a starting point even with the strong recovery in housing turnover, with a turnaround unlikely for some time given residential investment has yet to trough, consumer spending is constrained by weak wage growth and businesses outside of mining remain reluctant to invest.
Factoring in an initial hit from the virus outbreak, this leads us to forecast growth to remain below trend over the next year or so, before seeing a small improvement.
There is significant uncertainty about the extent and duration of the shock from the outbreak, but this outlook points to rising unemployment over 2020 and likely further action from the RBA beyond our expected rate cut in April.
