Australia GDP growth this year likely to be 1.6pc

Analysts at National Australia Bank (NAB) suggests that they are becoming increasingly concerned about the near-term momentum in private demand growth for the Australian economy.

"We know retail sales fell in Q3 and our internal data shows a very weak service sector consumption spend. Our internal data also continues to point to tax refunds mainly being used to repair household balance sheets by paying down debt.

Meanwhile investment in dwellings continues to fall substantially and private sector investment shows worrying weakness - with no improvement in sight. As a result we have downgraded our Q3 GDP estimate to around 0.3% (or 1.5% y/y). Also yesterday's NAB business survey showed private sector demand starting Q4 at depressed levels."

"Beyond that near term softness we have broadly maintained the shape of our growth forecasts That is, the key dynamics behind our assessment of the economy continue to be headwinds from a weak consumer and a significant downturn in housing construction.

We have also slightly lowered business investment. Partially offsetting this is strong public sector spending and growth in exports. Our global forecasts are broadly unchanged."

Putting that lower start point into our forecasts means GDP growth this year might be 1.6% (was 1.7% ) and it marginally lowers 2020 to 2.1% (was 2.2%) and 2021 at 2.5% (was 2.4%).

In through the year terms 2020 and 2021 are unchanged at 2.3% and 2.6% respectively. Again that would not be enough to lower unemployment which we still see at around 5.5% by md to late 2020 and into 2021. Core inflation forecasts are unchanged with core inflation not back to around 2% (bottom of the band) by end 2021. That reflects weak wage growth and ongoing margin pressures - especially in wholesale and retail.