The equity strategy team at Morgan Stanley Australia have gone out on a limb with their latest GDP forecast. Their GDP model has forecast just 0.2% growth in Australian GDP for the second quarter, a figure well under the market consensus of 0.5%. “On a year-ended basis, GDP growth is set to slow to the low-1s…in line with our view that Australia remains out-of-sync with growth recoveries in the US (2.1%), Europe (2.2%), Japan (2.1%) and Canada (4.6% in May).”
Their rationale is a low rate of growth in total household income, taking into account population growth, will lead to slower consumption growth. Consumption is such a large GDP component any weakness in it typically leads to a lower rate of GDP growth.
“We see cyclical headwinds shifting – from 1H17 weather disruptions and an ongoing resources capex unwind – towards a consumption squeeze amidst falling real wages, tighter credit conditions and a slowing housing cycle.”’
However, the Morgan Stanley team have left themselves some wriggle room and they are aware new wages data could produce a higher GDP forecast. “Key to any upside surprise would be a broader-based recovery in wages and income, which would allow the consumer to adapt to rising costs and also a higher debt burden…”
Second quarter GDP figures will be released by the ABS on 6 September.