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Tim Hext: Five key learnings from latest GDP numbers
Australia’s latest national accounts paint a mixed picture of the economy. Pendal head of government bond strategies TIM HEXT highlights the five key takeaways — and what they could mean for markets and interest rates
- Mining states are outperforming, consumer spending is holding up and private investment should recover
- The data reinforces the case for a near-term RBA rate hike
- Find out about Pendal Government Bond Fund
- Browse Pendal’s fixed interest funds
1. Mining states are doing well, non-mining states are not.
Queensland (+1.1%) and Western Australia (+1%) continue to benefit from healthy commodity prices.
NSW (flat) and Victoria (-0.3%) remained weighed down by cautious consumers and falling public investment as governments look to tighten their belts.
Source: Australian Bureau of Statistics
2. Consumers are doing OK overall (led by buying of EVs).
Final consumption expenditure grew 0.5% overall (government 0.6% and private 0.4%).
Record growth in EV sales was half of the private consumption growth. A mild winter held back energy spending and Middle East worries meant fewer overseas trips.
3. Private investment was flat after a massive Q1, but will pick up ahead.
The theme of massive data centre investment remains in place but took a breather in these accounts.
We expect it to pick up again in the second half of the year although dwelling investment will remain under downward pressure, especially if the RBA hikes rates.
Source: Australian Bureau of Statistics
4. Income growth remains too high for RBA comfort.
Compensation of employees, a wider measure than the Wage Price Index (WPI), grew by 1.5% in the quarter. Private sector growth was 1.4% and Public 1.8%. Health led the way as large-scale pay rises hit in NSW, Victoria and Queensland.
Unit Labour costs, stripping out the extra hours worked, increased by 1.2% and 3.6% annually, higher than the WPI suggests.
5. Trade was a positive contribution for the first time in two years but will continue to drag going forward.
GDP measures net trade, or volume of exports minus imports. Less overseas trips (an import) and reduced imports of AI related products meant a positive contribution this quarter.
Unless things worsen in the Middle East these should prove temporary.
In fact, Australia has regressed back to business as usual as the current account deficit is again 3% of GDP. Our net foreign debt position means higher interest servicing costs as rates rise globally.
The brief COVID induced (2020 to 2023) balance of payments surpluses are receding into the sands of time.
Even our balance of trade is now in deficit for the first time in a decade (this is revenue based, not volume based as per GDP so is impacted by terms of trade).
What the National Accounts mean for markets
While only slightly higher than RBA expectations, today’s national accounts will do nothing to stop the likely rate hike from a recent uptick in inflation.
The RBA narrative of tight supply means that 2% annual GDP, a modest number historically, is now seen as a stronger not weaker number.
Markets will remain buffeted by oil price moves but the Q3 trimmed mean CPI number in late October, likely to be 1% versus 0.8% RBA expectations a month ago, is likely to bring a November RBA rate hike, which is now fully priced.
Even September is now above 50/50 expectations, and the debate at the September RBA meeting should be very robust.
Find out about
Pendal Government Bond Fund
Tim Hext, Head of Government Bond Strategies
If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through our accounts team
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
This report has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332 AFSL 431426.
It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider whether the information is
suitable for your circumstances and we recommend that you seek professional advice.
The product disclosure statement (PDS) for the Pendal Government Bond Fund (Fund), issued by PFSL, should be considered before deciding whether to acquire, dispose, or hold units in the Fund. The PDS and Target Market Determination can be obtained by calling 1300 346 821 or visiting our website www.pendalgroup.com.
To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431
827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. All investing involves risk including the possible loss of principal.