Australia: Healthy growth outlook but some concerns about the consumer - NAB

Analysts at NAB point out that the Australian economy grew at a strong pace over the first half of 2018 – with output expanding by over 4% in annualised terms.

Key Quotes

“Looking forward, we expect growth to slow in annual terms, though still at a pace which should erode spare capacity.”

“Public sector demand – both infrastructure spending and NDIS-related consumption will remain strong.”

“We also expect non-mining business investment to benefit from additional spill-overs. Exports are expected to continue to grow relatively strongly - as the last of the large LNG projects reach full production capacity – and then level off.  Mining is a potential upside factor to the forecasts, with that sector now clearly reporting the strongest conditions and confidence, commodity prices having remained high and the drag from the unwinding of the boom now fading.”

“Despite the above special factors adding to growth, our main concern remains weak consumption growth - which is likely to weigh on broader economic growth (accounting as it does for over half of all economic activity).”

“On a more positive note, recent data suggest that the labour market remains healthy with trend employment growth tracking at around 25-30k per month. This should be enough to see the unemployment rate decline further after falling to a 6-year low of 5.0% in September.”

“Despite the strong growth and tightening labour market, the September quarter CPI suggests that inflationary pressure remains weak.”

“We have left our outlook for interest rates unchanged this month but our view remains heavily data dependent.”