GDP Forecast, Australia Sets To Dodge Recession

Another fall in Australia's gross domestic product (GDP) would put the nation into a so-called technical recession. But the government is not alarmed, given that a surge in exports and commodity prices, along with reasonable government and household spending, are almost certain to keep Australia out of recession.

Australia posted a 0.5 percent economic contraction in the September quarter and if the December quarter data shows the same, the country might be faced with recession according to the GDP forecast. The last time Australia had two consecutive quarters of economic contraction was the time recession supposedly had happened, which ended in 1991.

CBA senior economist Gareth Aird predicted Australia's economy would expand 0.7 percent in the last quarter of 2016 in his GDP forecast release. "If correct, the figures will show that the third quarter whether related contraction in output was a temporary aberration," Aird said, according to ABC News.

Aird also predicted the fourth quarter data were likely to see a continuation of recent economic trends in Australia. He said that the main contributions to GDP growth have come from net exports, household consumption, and dwelling investment over the last few years.

"Conversely, business investment has been a drag on growth. Most of these themes will be evident again in the fourth quarter data," he continued. CBA is forecasting that household consumption will contribute 0.3 percentage, as will public demand primarily from infrastructure investment, while net exports will add 0.2 percentage points and dwelling investment 0.1, which will likely improve Australia's GDP.

According to Forex Factory, the current account deficit has also been the lowest since 1979. The gap between Australia's earnings from overseas and payments to foreigners dropped around two-thirds to $3.9 billion, which makes up around 0.9 percent of Australia's GDP.

What's more important than the issue of whether such a narrow and rigid definition of a recession is even useful, is the fact that partial figures that feed into the national accounts have generally been supportive of GDP growth. This would eventually keep Australia away from recession, and give better hope in the coming revisions.

Tags

Australia, GDP, economy, deficit level, economic contraction, 2016 quarters, recession

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