Despite what is likely to be a weaker than expected reading, following a series of poor GDP numbers, Australians seem happy to ignore the declining economic growth of our country. Tomorrow’s GDP read is likely to show a real GDP contraction (GDP lower than the rate of inflation), with a level of absolute growth just above 1% – lower than during the depths of the global financial crisis.
We have seen the RBA lower their economic growth forecast for 2019/20 a couple of times in the past few months, and there is a fair chance that if tomorrow’s read is worse than expected, their forecasts will be lowered again.
For their part, the Federal Government is planning to a budgetary surplus, which in a contravention of conventional economics, will make the GDP numbers worse overall. Despite this, Treasurer Josh Frydenberg has conceded that the economic growth for last financial year will be poor.
For its part, the Australian stock market appears to be holding up rather well; so far, the XJO index of Australia’s 200 largest listed companies is just 4.5 percent off its July all-time high. For comparison, the US S&P500 index has fallen a similar amount from their July highs.
Given the lack of response from the Government, and indeed investors, it seems that Australia in large part appears unconcerned with a visible worsening in our economic fortunes.
Today we have seen the release of quarterly retail sales numbers for the final quarter of the 2018/19 financial year. The numbers were lower than expected, which will likely cause the consensus for tomorrow’s GDP read to be revised lower as well. On top of this, we have falling infrastructure spending, falling private construction investment, and have just finished a company reporting season described by UBS analyst Pieter Stoltz as “one best forgotten” with more earnings misses than beats.
Most forecasters are predicting weak GDP numbers, with National Australia Bank (NAB) economists predicting a headline GDP growth rate of 0.2 percent for the final quarter of 2018/19. Commonwealth Bank (CBA) economists are predicting 0.5 percent for the quarter, and 1.4 percent for the year. KPMG’s economists are predicting around 1.4 percent for the financial year. All of these are quite a way below the Reserve Bank’s forecasted growth rate of 1.7%.
With inflation and population growth both tracking around 1.6% it is likely that we will see both a real and per-capita recession across the whole of 2018/19. I’m not trying to sound too doom and gloomy, but more can be done to improve the economic prospects of our nation. At the very least that would start with an increase in government spending.