GDP Looks Good at First Glance

GDP Looks Good at First Glance

Australia’s third quarter GDP figures were released yesterday showing growth of 0.9% for the quarter, or 2.5% overall for the year!

While it looks good, don’t be fooled!, Exports account for 1.5% of this apparently healthy number. Which means the domestic economy continues to struggle.

Property Prices to be Supported

For the Property market however, this really is a good number!

Even though there are weaknesses within the number, as discussed below, the headline on the evening news last night made it look very good. This will encourage greater confidence among buyers, most definitely.

There is also no stop to the inflow of foreign funds to buy Australian assets, particularly Australian property!    

Australia bounces back in Q3? This appears to be great news, but let’s take some of the volatility out of this number.

The economy is resilient. However, almost all of our GDP strength remains due to the greater health of our Asian neighbours who have supported us during our continued period of economic ineptitude.

On closer examination, there is a lot going on here. The release of the pent up businesses demand as a result of previous ALP governments, and even to some degree with the recent Abbott government is playing out.

Australian GDP Growth Rate

The Turnbull effect is real, but these numbers are really about;

  1. A continuing strong China/Asia environment.
  2. A lower AUD that is providing a significant windowof opportunity across many industries.
  3. At least stability in interest rates, if not at the correct, lower level of 1.5%.

Even This Headline Number May Not Continue

Apart from exports again saving the entire economy, not to mention investment from China and elsewhere supporting us, the other note of caution is that these numbers have a statistical pendulum effect. That is, swinging too high, then too low alternatively.

Therefore, as always we look to “the average”, which over the past two quarters - the Australian winter - was 0.55%. That is still one of the slowest performing economies in the world, despite strong exports. When you take away the mining sector, we are barely moving!

On the Australian property front, prices, particularly in Brisbane and the Gold Coast, remain quite low compared to middle and upper class major Asian cities. This creates a huge buying opportunity for both domestic and international investors. In addition, the spillover effect from Sydney and Melbourne that I have been speaking about is indeed happening.

So, while the economy is not doing as well as the simple headline number on the evening news might suggest, the outlook for property remains bright. This is still a strong property market overall and remains the right time to buy property in the right location.

Clifford Bennett International Economist

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