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Today we learn how the economy performed in the three months to December last year.
Key points:
- NAB is expecting a quarterly GDP number of 0.8 per cent, ANZ 1 per cent
- Retail figures point to continued strength in services consumption, but a slow down in good purchases
- NAB warns there is close to a 50/50 chance that Australia will slip into recession over the coming couple of years
Gross domestic product (GDP) figures will be released by the Bureau of Statistics at 11:30am AEDT.
It's backwards-looking data but it's still significant.
Most economists agree the data will show the economy grew solidly at the end of last year.
NAB sees a 0.8 per cent growth in the fourth quarter of 2022.
"Household spending looks to have remained resilient to rising rates and inflation," NAB chief economist Alan Oster said.
Gross domestic product basically consists of growth in consumption spending (shoppers), business spending and investment, government spending and the difference between exports and imports.
It is the main way we currently measure activity and growth in the economy.
It is clear from the partial data already available that Australians spent quite a bit on services late last year, and that will have given the economy a bit of a kick.
"In part, this reflects the ongoing recovery in services spending," Mr Oster noted, as people resume lifestyles closer to pre-COVID norms.
"Elsewhere, investment looks to have fallen slightly, while net exports will provide a large boost, partially offset by the stock cycle."
ANZ Bank has upgraded its assessment of how the economy performed.
"Key partial indicators released over the past two days have mostly netted out, but we are nudging our fourth quarter GDP forecast up a touch to +1.0 per cent, (from our initial forecast of +0.9 per cent).
"Annual GDP growth for 2023 is forecast to be a solid 3.0 per cent.
"A 1.0 per cent gain for the quarter would be a solid result and suggests the economy ended the year with quite a bit of momentum despite aggressive monetary tightening."
Wages, consumption data crucial
As always, while examining GDP, it's worth remembering this is a look in the economic rear-vision mirror.
Given that, economists will be combing today's data to look for clues as to how the economy is performing now and, perhaps, provide a window into the economic outlook.
"While the partial data suggest a strong outcome for GDP, it will be the inflation and wages indicators in [today's] GDP report that will be key from a policy perspective," ANZ's economists noted.
"Taking into account government wages from [this week's] public finance report, we expect the RBA's preferred measure of wider labour costs – non-farm average earnings per hour – to have risen a modest 0.6 per cent in the December quarter.
"After larger earlier gains, however, this would see annual growth rise to a strong 4.5 per cent."
The Wage Price Index (WPI) for the December quarter showed pay packets expanded by 3.3 per cent, up slightly from 3.2 per cent in the September quarter, but the National Accounts measure takes into account bonuses and other extra payments excluded from the WPI.
Wages growth is important because consumers' purchasing power is crucial for the performance of the economy.
Consumer spending makes up the majority of economic growth.
Many consumers are currently struggling with the soaring cost of living, especially rising energy costs, rent increases and higher mortgage payments.
The current corporate reporting season has highlighted that companies shoulder some of the blame for tighter household budgets.
Firms have been lifting prices in order to grow their profit margins, not just to recoup their own higher costs, adding to the cost of living.
At the same time, consumers have been buying less stuff from the shops and businesses have been reducing their inventory.
Yesterday's ABS retail sales figures showed, in trend terms, growth in the sector is broadly flat — which suggests consumer spending won't be providing a big kick to economic growth.
Real estate drag on the economy
Looking further into this year, another crucial driver of consumer sentiment is the performance of the property market.
The latest figures from property research firm CoreLogic provide some reassurance to home owners worried about falling dwelling values.
CoreLogic's Home Value Index (HVI) recorded a sharp reduction in the rate of decline through February.
"The national index declined -0.14 per cent over the month, the smallest monthly fall since May 2022 (-0.13 per cent), when rate hikes commenced," the firm noted.
Sydney dwelling prices actually rose 0.3 per cent in February.
"The stabilisation in housing values over the month coincides with consistently low advertised supply levels and a rise in auction clearance rates," CoreLogic's research director, Tim Lawless, added.
However, Westpac's research suggested it was premature to call an end to significant falls in the property market.
"The housing market correction that began in early 2022 is moving into its second year," Westpac's Housing Pulse for February 2023 noted.
"The last three months has seen turnover and prices continue to decline, and housing–related sentiment still firmly in negative territory.
"Markets will continue to come under intense pressure over the first half of 2023, with high inflation expected to draw a further 75 basis points in interest rate tightening from the RBA."
'Recession risks rising'
The government and the export sector can also generate economic growth.
Again, though, the government is wrestling with a significant structural deficit and close to a trillion dollars in gross debt, which makes the prospect of resurrecting the economy from any kind of contraction a politically, and economically, difficult task.
It also puts yesterday's announcement of a cap to superannuation concessions on earnings for balances of $3 million or more into perspective – the government is spending a considerable amount of time working out where it can stop losing revenue.
Much also rests on how well the resources sector performs in coming months and that, in large part, depends on the health of the Chinese economy.
While a recession may not be likely later this year or next, the economy is at risk of stalling.
"The effects of higher interest rates, the rapidly increasing cost of living and declining real wealth are all expected to weigh on demand in the period ahead," IG's Tony Sycamore warned.
National Australia Bank's chief economist Alan Oster has the risk of an Australian recession at 45 per cent, but adds "recession risks [are] rising".