Australia: Quality of the growth is poor - Nomura

Research Team at Nomura, notes that the Australia’s Q1 GDP rose by a strong 1.1% q-o-q, beating consensus expectations (0.8% q-o-q) but coming close to their (admittedly) revised estimate of 1.0% q-o-q.

Key Quotes

“Unfortunately, we judge the "quality" of the growth to be poor – coming from rising government spending, higher export and lower import volumes, while private demand again remained broadly flat.

Strong real GDP is continuing to mask a much weaker picture in terms of nominal GDP and income growth, which does not augur well for future real GDP growth. While mining output and exports rose, mining profitability declined, highlighting that Australia essentially shipped more but earned less in Q1.

We retain a cautious and below-consensus growth outlook and continue to highlight: (i) business investment intentions and capex indicators look mixed at best, while consumers are carrying high debt burdens and facing record low wage growth; (ii) policy levers are not providing material support, with fiscal policy modestly restrictive and AUD continuing to trade a little above our perceived fair value (and boosted by the latest Fed rate hike delay); and (iii) our below-consensus growth outlook for key trading partners in the region, particularly China and South Korea.”