Analysts at ANZ have revised their Australian Q2 GDP pick up to 0.5% q/q which follows the publication of the Q2 retail sales figures and the external trade data.

Key Quotes

“We usually refrain from adjusting our pick for GDP as the quarterly partials arrive, because it can generate what turns out to be needless volatility in the number. In this case, however, we are adjusting our estimate given that both data were stronger than expected, and it seems reasonably clear that our initial pick was too low.”

“We are not, however, getting carried away. Our expectation is still for only moderate growth in the quarter, with stocks expected to be a big subtraction. If our number is right, then annual growth will slow to 1.4% – its weakness pace since March 2009.”

“From that point we expect a reasonable acceleration, with annual growth effectively double this level in 2018. This is somewhat below the growth expected by the RBA, especially as we move into 2019.”

“While Q2 wages were in line with expectations, the details were soft. Private sector wage growth actually slowed a touch. The absence of any pickup in wage growth continues to contrast with the strength in employment. Wage growth will be boosted by the increase in the minimum wage in Q3. This will make it more difficult to determine the underlying trend until we get a read on wages outside the impact of the minimum-wage increase, through the course of 2018.”

“Given this the question to ask is whether faster wage growth is a necessary condition for an RBA rate hike? We think not, though it would certainly help the case; and without higher wages any tightening cycle will be very moderate. Be that as it may, with wages still the missing piece of the puzzle we are comfortable with the view the RBA is on hold through 2018.”