Australian Q3 GDP review: What’s next for the ASX 200?

Article prepared by Tony Sycamore

What happened?

This morning's national accounts release showed that the Australian economy expanded by 0.6% QoQ and 5.9% YoY in the September quarter (Q3). It was the fourth consecutive quarter of economic expansion for the Australian economy.

The rise was slightly lower than market expectations of 0.7% QoQ and 6.3 %YoY and a step down from the 0.9% print in Q2.

Growth was driven by household spending, which rose 1.1% this quarter (vs 2.2% in Q2) and contributed 0.6% to GDP. Hotels, cafes and restaurants (+5.5%) and transport services (+13.9%) led the increases as COVID-related impacts eased, aiding the recovery of domestic and international tourism-related activity.

The household saving ratio fell again from 8.3% to 6.9% as consumers dipped into savings partly to counter the cost of living and mortgage pressures. The savings ratio is back to pre-pandemic levels and a long way from the 23.5% level it reached in Q2 2020.

"Higher levels of spending and increases in interest payable on dwellings detracted from household saving compared to the June quarter," ABS head of national accounts Sean Crick said.

Australia's terms of trade fell 6.6% for the quarter, with export (-2.8%) and import (+4.1%) prices both contributing to the fall. Mining commodities drove the fall in export prices, with weaker overseas demand for iron ore and coal prices falling from record highs in previous quarters.

Following a fall in Q2, which detracted 1.2% from GDP, Inventories added 0.2% to Q3 GDP growth and appear to be re-building after being run down during the pandemic.

The expected slowdown in GDP is in line with the RBA's updated forecasts in the recently released Statement of Monetary Policy. It is part of the plan to contain inflation and cool the labour market while keeping the economy on an even keel.

Whether this can be achieved remains to be seen. The impact of the RBA's rate hiking cycle will likely become more evident in the December quarter national accounts.

The ASX 200

The softer-than-expected GDP print and a second heavy fall on Wall Street overnight have conspired to send the ASX 200 to its worst day since early November, currently trading down 62 points (-0.85%) at 7229.

The preference continues to accumulate into a pullback towards the 200-day moving average at 7000. However, before that, there is uptrend support at 7210 today, coming from the October 6411 low.

ASX 200 daily chart

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