With the Q4 GDP announcement imminent, recent data from the Australian Business Indicators Survey pointed toward potential upward adjustments to economic forecasts.
“Today’s data points to some upside risk to our current forecast for Q4 GDP on the back of stronger-than-expected business inventories, which we expect will +0.3ppts to GDP growth,” said Ryan Wells (pictured), an economist at Westpac.
This update follows observations of increases in sales, profits, and wages, offering a more comprehensive picture ahead of the final GDP figures.
Additionally, this update coincides with findings from The Westpac-Melbourne Institute Leading Index, which indicated a rise in the six-month annualised growth rate to 0.58% in January, up from 0.24% in December, suggesting a positive shift in the future pace of economic activity, reinforcing the optimistic outlook derived from the business survey data.
December’s quarter showed a modest 0.1% rise in private non-farm business inventories, surpassing Westpac’s initial expectations of a decline.
This unexpected boost largely came from the mining and retail sectors, which experienced inventory increases of 0.6% and 0.5%, respectively.
This contrasts with the manufacturing sector, which saw a significant drawdown in inventories, reflecting ongoing challenges including a 2.3% drop in sales.
The overall business landscape saw mixed results, with total sales volumes up by 0.3% for the quarter. The hospitality and wholesale trade sectors posted notable gains, while smaller sectors such as arts and recreation faced declines.
Headline company profits saw an unexpected increase, climbing 5.9% in the December quarter and greatly exceeding Westpac’s forecast. Significant contributions came from both the mining and non-mining sectors.
“We had expected both the mining sector and non-mining sector to contribute to profit growth in the quarter, but the size of the increase across both was larger than anticipated,” Wells said.
This profit rise was partly influenced by the inventory valuation adjustment (IVA), which notably shifted profit figures within the accounting framework.
Wage growth also exhibited strong momentum, with a 1.4% rise in Q4. This marked a substantial acceleration from earlier in the year, highlighting robust labour market conditions and the impact of new wage agreements.
“The gains over the second half of the year far outstripped the gains seen in the first half,” Wells said.
As additional indicators such as net exports and public demand become available, they will further refine the GDP forecasts.
The comprehensive data set from the December quarter paints a picture of gradual economic recovery against a backdrop of moderating inflation and recent tax cuts, providing critical insights as stakeholders anticipate the detailed GDP report.
Read the Westpac insights here.
