Concerns About Australian Economy as GDP Falls Short

Alan Penny

4 December 2019

3 min read

Sydney, Australia

  • Australian GDP Q/Q 0.4%, as opposed to the 0.5%
  • US/China trade war affecting the AU economy
  • Housing bubble exists
  • RBA likely to do QE

During the early hours of Wednesday, the Australians released Gross Domestic Product figures quarter over quarter, giving a peek into what the Australian economy is doing as far as growth is concerned. While the Australian GDP results produced a positive number, coming in at 0.4%, it was less than the 0.5% projected by most analysts. Because of this, there are a few concerns about the Australian economy but when looking to the external influences, it’s not much of a surprise.

External pressures

The external pressures on Australia are going to continue to be a major problem. After all, Australia is a major player when it comes to providing China with the raw materials necessary to build their massive economy via construction and export. Because of this Australia has not had a recession for 20 years or more. However, as the US/China trade war continues to rage on, this has massive implications for Australia, as the Chinese economic numbers have been falling rather rapidly.

as the US/China trade war continues to rage on, this has massive implications for Australia

On the other hand, recently there have been a few small surprises coming out of China to the upside, and that will help the Aussie dollar. Furthermore, if US and China can come together with some type of agreement, the Australian dollar will explode to the upside. This is because the Australian mining sector will certainly be one of the major beneficiaries.

It’s very likely that this pair will continue to move back and forth based upon headlines coming out. Furthermore, Australian stocks will also be thrown around by that issue.

Beyond that, global growth has been slowing down and there are a lot of concerns about a worldwide manufacturing recession. A recession means that a lot of big players out there won’t need commodities, and that will continue to have a major influence on the Australian economy. However, if stabilization starts to be seen there, that will be yet another reason why the Australian dollar and the Australian stock market should continue to go higher.

Internal pressures

The housing market in Australia has been in a bubble for several years, and it is starting to display more signs of disruption in that area. It is likely that the housing market will continue to be a concern, but if it can get a turnaround from the external pressure placed upon the Australian economy, it’s likely that it could sort itself out over time.

The Reserve Bank of Australia is likely to do quantitative easing, as there have been signs of concern when it comes to the global economy. Recent comments have put that thought into the back of traders’ minds, but it looks very likely that the Australian dollar is trying to form a longer-term bottoming pattern, so although against the ropes, the Australian dollar and economy may very well be a candidate for a major turnaround in 2020.

Written By
Alan Penny

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