GDP figures underwhelming and dispel hopes of turning point the RBA is hoping for, economists say

The Reserve Bank of Australia was hoping for a turning point in the economy, but economists say new figures prove we’re not there yet.

The Reserve Bank of Australia is tipped to view the slight improvement in the GDP figures from the previous quarter as evidence of a gentle turning point in the economy, but experts say this is misleading, and the data released today is “poor”.

The economy expanded by 0.4 per cent in the September quarter, below market consensus, while annual growth was below trend at 1.7 per cent despite improving on the previous quarter’s 10-year low.

“The economy has continued to grow; however, the rate of growth remains well below the long run average,” Australian Bureau of Statistics chief economist Bruce Hockman said.

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When announcing the RBA would leave interest rates at 0.75 per cent on Tuesday, governor Philip Lowe said the three rate cuts in 2019 had contributed to a “gentle turning point in the economy”.

“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth,” he said.

“The central scenario is for growth to pick up gradually to around 3 per cent in 2021.”

AMP chief economist Shane Oliver expects the central bank to view today’s GDP figures in support of this notion but said the ABS data showed an unhealthy reliance on public spending and trade.

“We haven’t seen much of a pick-up in private demand,” he told news.com.au. “In fact, in the most recent quarter, we’ve seen continued softness in consumer spending, up just 0.3 per cent, and falls in housing construction and business investment.

“So the mix in the economy is quite poor.”

Hello? Is it the turning point you’re looking for? AAP Image/Mick Tsikas

Despite the “turning point” rhetoric, Dr Oliver said the central bank would be “wary” of the figures given its comparison to the poor numbers in the previous quarter.

“We really need to see other parts of the economy kick in and that’s the big disappointment in these numbers, particularly business investment,” he said.

“It was hoped in the Government’s forecast and the RBA’s forecast that business investment would start to pick up whereas there’s not a lot of signs of that.

“In my view, it continues to put pressure on further policy stimulus in Australia.”

Ernst & Young chief economist Jo Masters agreed, saying the numbers will continue to place pressure on policymakers given the “tepid and narrowly based” data.

“Today’s GDP figures indicate we can expect further rate cuts from the RBA in 2020, and the prospect of quantitative easing will remain a talking point,” she said in a note.

“Further moderation in private consumption would be a concern, and likely add pressure on the Government to provide some support in the federal Budget in May.”

BIS Oxford economist Dr Sarah Hunter echoed the sentiment shared among experts there was “no sign yet that the increase in tax offsets and rate cuts are boosting household spending”.

“Instead, households have chosen to save the additional disposable income from the higher tax offsets and lower mortgage interest payments,” she said.

The Aussie dollar dipped from 68.49 US cents immediately after the data’s 1130 AEDT release before plunging to 68.31 cents at 1210 AEDT following an escalation in US-Chinese trade relations.

Should the GDP figures be viewed as a “gentle turning point”? Comment below or get in touch @James_P_Hall | [e-mail]