Australia Second-Quarter GDP Data May Cloak Underlying Strength
Australia’s second-quarter gross domestic product is likely to obscure the economy’s underlying strength before the latest coronavirus outbreak hit, with lower export volumes diluting the headline numbers.
GDP is set to rise a seasonally adjusted 0.4% in the three months through June from the prior quarter, and 9.1% from the year-earlier period that was battered by Covid-19, a Bloomberg survey of economists showed Tuesday. Underscoring the strength of activity, the country’s current-account surplus hit a fresh record last quarter as commodity prices soared, reflected in the terms of trade jumping 7%.
“While the net exports will drag heavily on activity due largely to higher commodity prices, this will also deliver stronger national income,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada. She predicts the economy expanded 0.4% in the second quarter.
Prior to the latest reports that provide economists with data to finalize their forecasts, Citigroup Inc. and AMP Capital Investors Ltd. had predicted the economy would contract 0.1% in the second quarter. That would have set up a technical recession, as GDP is expected to fall sharply in the current quarter due to renewed lockdowns along Australia’s heavily populated east coast.
Shane Oliver, chief economist at AMP, revised up his estimate to a 0.3% gain following the latest data releases, which include government spending. Josh Williamson, Citi’s chief economist for Australia, upgraded his estimate to 0.5%, citing “a large upside surprise from the government sector and a smaller drag from net exports.”
Also underpinning the economy is strong domestic demand, as households remain cashed-up from government support and record-low borrowing costs. However, weaker-than-expected inventories, together with net exports, will erode much of that strength.
The Australian Bureau of Statistics will release the second-quarter GDP data at 11:30 a.m. Sydney time on Wednesday, with quarterly estimates ranging from a rise of 0.1% to an increase of more than 1%.
The third quarter is likely to see a severe economic contraction, with Sydney already in its 10th week of lockdown and other cities forced to implement stay-at-home orders as the delta strain of the virus spreads.
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