News traders huddle up! Central bank events are not the only potential market-mover this week. Tomorrow at 1:30 am GMT Australia will print its GDP for Q3 2016. Will Australia see its first GDP contraction in five years?
But first, what the heck is a GDP report?
The gross domestic product (GDP) is the most widely-used measure of economic growth rate. Forex traders pay attention to GDP releases because central banks also look at GDP components and their trends for clues on how to proceed with their monetary policies. In Australia, its the Australian Bureau of Statistics (ABS) that prints a GDP report about two months after a quarter ends.
Q2 2016s GDP already showed weakness
At least the headline numbers did. Growth in the second quarter clocked in at 0.5%, lower than the already downwardly revised 1.0% uptick in Q1 and missed the 0.6% growth expectations.
Investors chose to focus on the bright side, however. See, the 0.5% uptick marked the 21st consecutive quarterly growth and the 25th consecutive year without recession for Australia. Thats the second longest streak in the developed world, yo! Even the annualized figure inspired good vibes, as its 3.3% translated to the fastest annualized growth rate in four years.
A closer look tells us that final consumption expenditure grew by 0.8% and contributed 0.6% to the GDP while government expenditure rose by a nice 1.9% and household spending also popped up by 0.4%.
The blights that needed watching include the trade numbers, which reflected rising imports and slowdown in export growth, and one-time government spending spree that put the extra spring in the economys growth.
The Aussie lost footing at the release of the headline numbers, but soon recovered its pips when traders chose to focus on the reports good stuff.
Analysts arent feeling the love for the Q3 2016 release
Current market consensus puts Australias Q3 GDP at 0.2%, but some forecasters are calling a flat (and even negative) growth. Whats up with that?!
We dont have to look far for answers. Just last week we saw the value of construction work done fall by 4.9% to its lowest quarterly levels in six years. Analysts estimate that it would shave off as much as 0.7% from the GDP! Capital expenditures also fell during the quarter, with equipment, plant and machinery expenditure a figure that feeds into the national accounts declining by another 1.9%.
Todays releases didnt help either. The current account report printed a narrower deficit in Q3, but also reflected that imports are rising faster than export volumes. Meanwhile, government spending figures showed a whopping 10.4% drop in capital spending and a 0.2% dip in consumption expenditure.
Putting the early signs together, it looks like Australias Q3 GDP will get no help from business and government spending and maybe minimal (or no) support from net exports. Consumption-related contributions arent looking too good either, especially since Australias labor force is still wrestling with underemployment.
The RBA already called it
For forex traders, the GDP reports impact is only as good as its influence on the Reserve Bank of Australias (RBA) monetary policy decision and, if we look at the central banks latest decision, it sounds like Governor Lowe and his team have already seen low growth coming.
In its statement earlier today, the RBA said that the economy is continuing its transition following the mining investment boom and that some slowing in the year-ended growth rate is likely, before it picks up again. It has also already recognized the varied nature of the labor and housing market reports.
So while well likely see weaker economic growth in Q3 2016, it would take a significant miss against analyst estimates before we see sustained impact on the Aussies price action. Were not ruling out choppy and/or volatile price action during the release though, so make sure you practice good risk management when news trading the report!
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