The Australian economy grew at just 0.5% in Q4, missing a consensus estimate of 0.6% q/q. Although, Q3’s headline number was revised higher to 0.4% from 0.3% q/q, which neutralised the direct impact of today’s data on the Australian dollar. Nonetheless, the economy is moving ahead at a much slower pace than its long-run average, largely due to diminishing mining investment and still lacklustre levels of activity in most non-resource parts of the economy, underpinned by falling business sentiment.
At first glance the headline year-on-year growth rate doesn’t seem too bad at 2.5% (the same as Q3), but this figure is distorted by Q1’s massive surge in exports. When this one-off jump is taken out of the equation, growth is running below 2%. This is well below the historical average, which is around 3%.
Importantly, the economy is still very reliant on exports and the rest of the economy remains flat, which is highlighted by a 0.7% contribution to growth this quarter from exports which was offset by a 0.6% drop in inventories. On the whole, today’s figures support the case for looser monetary policy in Australia.
As we stated earlier AUD had a limited reaction to today’s numbers. AUDUSD dropped initially, before recovering all of its losses and then some. AUDJPY suffered a little heavier due to widespread yen strength in the Asia session, but the pair remains in a medium-term upward trend. In fact, it’s hard to get too bearish on this pair without a confirmed break of this trend, although we may see it test channel support (see chart).