Economic Update October 2018
Summary
US outperforms, Australia wallows?
The US economy continues to outperform other global economies, and a 4.2%saar real GDP growth rate is undeniably strong. Elsewhere, activity in other major advanced economies has stuttered, at least during the first half of 2018. As a result,
the narrative has moved toward the US economy decoupling from these economies – synchronous global growth has become increasingly fractured.
But is the story any different for Australia? If we were to report GDP growth in the standard US convention, which annualises quarterly growth rates, Australian real GDP growth expanded 4.7%saar in the March quarter, decelerating to 3.5%yoy in
the June quarter. Adopting the Australian convention, the US economy expanded 2.9%yoy in the June quarter, compared with 3.4%yoy for Australia. The trajectories of growth may be somewhat different going forward, as there is a lot of fiscal
stimulus still in the US system, but as it stands, in terms of headline growth numbers, Australia has outperformed the US materially through 2018 to date.
Global: Australia & US GDP comparison
Australia’s headline performance can be misleading
Source: IFM Investors, ABS, BEA,Macrobond
Despite this, the local perceptions of the two economies could hardly be any more different. Economists in the US are becoming concerned about the length of the cycle, the economy overheating, supply side constraints, inflation breaking out as
wage growth improves, and the US Federal Reserve (Fed) potentially having to raise policy rates more aggressively than it already expects. Many market participants in the US are preoccupied looking for signs the economy is overheating. In
Australia, economists are generally encouraged by economic, and particularly labour market, outcomes. But spare capacity remains: consumers are relatively cautious, there are downside risks to house prices, wages growth is only showing tentative
signs of picking up, and inflation is nowhere near the Reserves Bank of Australia’s (RBA) target. A similar assessment prevails amongst non-economists as well: US consumer confidence is at 18-year highs and business confidence is not
far behind. In Australia, the former is muted and the latter, although elevated, is off peaks seen in 2017.
About the author
Chief Economist
Alex Joiner, PhD
Joined in 2016
Bachelor of Economics (Hons) (Latrobe University), PhD (Econometrics) (Monash University).
Alex is IFM Investors’ Chief Economist and has more than a decade of experience in the field. He is responsible for the firm’s economic, financial market and policy analysis and forecasting. Alex is also a member of the firm’s Investment Committee. Prior to joining IFM Investors, Alex was the Australian Chief Economist for Bank of America Merrill Lynch. In this role, Alex was responsible for providing economic insight and forecasts across asset classes and conveying these views to both domestic and global investors. Alex was also previously a Senior Economist at the ANZ Bank.