The upcoming Q4 national accounts are expected to show GDP growth of 0.8 per cent quarter-on-quarter and 2.8 per cent year-on-year, according to new forecasts by NAB.
The bank’s economists said that household spending looks to have remained resilient to rising interest rates and inflation, in part reflecting an ongoing recovery in services spending.
“Elsewhere, investment looks to have fallen slightly, while net exports will provide a large boost, partially offset by the stock cycle,” they said.
“We expect the production and income sides of the accounts to reflect the broader trends unfolding in the economy, with services industries seeing gains, while goods industries generally remain resilient. Labour cost measures will see strong prints reflecting the ongoing tightness in the labour market.”
The national accounts will be released on Wednesday, less than a week before the Reserve Bank (RBA) announces its next rate decision the following Tuesday. However, NAB’s economists downplayed the impact that the data release will have on the central bank.
“This release will be unlikely to shift the dial for policy with the RBA squarely focused on managing the risk of broadening inflationary pressure amidst the strength in domestic demand. Indeed, these accounts will show that the economy has remained more resilient than expected,” they stated.
Prices and wages measures in the upcoming national accounts, the economists added, will likely confirm the broad-based inflationary pressure faced in the Australian economy.
“Ultimately, the RBA has signalled that there will be further increases in coming months based on a forward-looking reaction function and their latest set of forecasts,” they noted.
“That said, slowing growth will likely be the first signal the economy is cooling in response to rate rises alongside the moderation in global inflation. Therefore, activity partials — particularly for consumer spending — will be important in assessing the flowthrough in policy over coming months.”
NAB has forecast rate hikes of 25 basis points will be announced by the RBA in March, April, and May, which will take the cash rate to an 11-year high of 4.10 per cent.
On the outlook for GDP, the bank has warned that growth is now expected to slow sharply, driven by flat to negative outcomes for consumption in the second half of the year as the full impact of higher rates and inflation flows through.
“Goods spending is expected to moderate, though there may be some ongoing recovery in services spending. Dwelling investment and business investment are expected to weaken, though we expect a small positive offset from net exports,” NAB’s economists predicted.
“With ongoing volatility in the trade numbers, a focus on domestic demand will be important for policy — particularly for consumption, but as the volatility fades there, trends in the smaller components of GDP will become more important for overall growth.”
