• The last of Australia’s Q4 GDP inputs were released today, and both were marginally stronger than markets were expecting.
• Economists at ANZ and the CBA are forecasting real GDP to increase by 0.4% in the December quarter, down from 0.6% in Q3.
• Household services consumption — a major part of the Australian economy — won’t be known until the GDP report is released.

Australia received the last of its partial GDP inputs today with the release of Australia’s Balance of Payments (BoP) report for the December quarter.

The news was pretty reasonable, largely eliminating any chance of another shock GDP contraction being recorded.

While net exports will lop 0.5 percentage points of Q4 GDP, the contraction wasn’t as severe as the 0.6 percentage points decline that had been expected by economists.

And after a soft result in the prior quarter, government consumption and investment also rebounded, adding to real GDP.

Consumption increased by 1.7%, an outcome that is expected to add 0.3 percentage points to GDP growth for the quarter, according to the ABS. Investment rose by a larger 2.9%, adding an expected 0.2 percentage points to growth.

Following a strong lift in retail sales volumes in the December quarter of 0.9%, a result that will also add around 0.2 percentage points to GDP, the risks to tomorrow’s report are now more evenly balanced than was the case beforehand.

Based off GDP partials that we have to date, the pieces of the GDP jigsaw puzzle point to a modest increase in economic growth, says Gareth Aird, Senior Economist at the Commonwealth Bank.

“We expect to see a lukewarm set of numbers,” he says.

“Based on the economic information to date, we have forecast Q4 GDP growth at 0.4%. If correct, annual growth will step down to 2.2% as sizeable 1.1% rise in the final quarter of 2016 drop out of the annual calculation.

“Real GDP in line with our call would be a touch lower than the latest RBA forecasts contained in the February Statement on Monetary Policy for 2.5%.”

Aird says that he expects a solid lift in household consumption and a boost from both public consumption and investment during the quarter, helping to offset likely declines from residential construction, business investment and net exports.

He also says that the risks to his quarterly forecast are to the upside given strong employment growth in late 2017, something that should help to underpin consumption.

Felicity Emmett, Economist at ANZ Bank, is also looking for a quarterly increase in real GDP, although she admits there’s a higher degree of uncertainty that usual when it comes to household consumption.

“The biggest miss for us was on the wages numbers — the wages data in the business indicators release on Monday and in Tuesday’s government finance data were all weaker than we had anticipated,” she says, referring to recent partial GDP inputs.

“This, alongside the weakness in January retail sales, makes us a little more concerned about the outlook for household incomes and consumption.

“On that front, we see the household consumption and wages numbers in the GDP report as being of key importance.”

Household consumption is the largest part of the Australian economy at around 60%.

While retail sales volumes grew by 0.9% over the December quarter, information on services consumption — accounting for about 70% of total household consumption — won’t be known until the GDP report is released.

The answer to that question will arrive at 11.30am AEDT on Wednesday.

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