Westpac tips stronger Australia Q3 GDP, underscoring resilience in domestic demand and easing cost pressures
Traders will look to December 3 National Accounts after Westpac flagged a firmer pulse in Australia’s economy for Q3, with broad-based domestic demand and a nascent productivity rebound potentially supporting AUD and near-term rate expectations.
Growth momentum picks up into year-end
Westpac expects Australia’s Q3 GDP to rise 0.8% quarter-on-quarter, lifting annual growth to 2.3% — slightly above the Reserve Bank of Australia’s newly updated 2.0% trend estimate. The bank says its high-frequency Westpac-Now model has been pointing to improving underlying momentum into year-end, reinforcing the case for a more synchronized recovery across the economy.
Domestic demand drives the upswing
A key feature of the anticipated result is the breadth of domestic demand, which Westpac estimates rose 1.5% in Q3, the strongest quarterly increase since early 2012. Rather than relying on isolated pockets of strength, the rebound appears more widely distributed across sectors, signaling improved resilience in household and business activity.
One-offs to fade, underlying pulse still firm
Headline growth is expected to moderate in coming quarters as outsized capital-expenditure items — notably aircraft purchases — drop out of the numbers. Adjusting for these one-offs, Westpac still sees underlying quarterly growth running at a solid 0.6%, pointing to a sturdier core expansion than headline swings imply.
Productivity improves, easing unit labor costs
Westpac anticipates a meaningful productivity pickup of about 0.9% over the year. In turn, nominal unit labor cost growth is seen slowing to roughly 2.5% on a six-month annualized basis — an encouraging sign for the RBA as it assesses the inflation trajectory and the durability of disinflation without undermining growth.
Market implications: AUD, bonds and rates
A stronger, more broad-based Q3 print could underpin the Australian dollar, particularly if productivity gains temper unit labor cost pressures, supporting a soft-landing narrative. For rates, a firmer activity backdrop might nudge front-end yields higher, but evidence of easing cost growth could temper expectations for additional RBA tightening. Positioning into the data is likely to be cautious given year-end liquidity, with FX volatility sensitive to any upside surprises in domestic demand and revisions to prior quarters.
Beyond the GDP release, traders will watch Australia’s monthly inflation reads, retail indicators and China-sensitive commodities for confirmation of momentum. If growth breadth persists while cost pressures cool, the policy path may remain finely balanced — supportive for risk assets but dependent on incoming price data.
Key Points
- Westpac projects Q3 GDP at 0.8% q/q, 2.3% y/y, modestly above the RBA’s 2.0% trend.
- Domestic demand likely surged 1.5% q/q — strongest since early 2012 — with broader sector participation.
- Headline growth may ease as large capex one-offs (e.g., aircraft) roll off; underlying growth seen at 0.6% q/q.
- Productivity expected to rise 0.9% y/y, helping slow nominal unit labor cost growth to ~2.5% (six-month annualized).
- For markets: potential AUD support and a nuanced rates outlook as growth firms but cost pressures moderate.
Questions and answers
How might the GDP print affect AUD/USD?
A stronger, broad-based Q3 outcome typically supports AUD, especially if it reinforces a soft-landing story. However, if unit labor costs cool alongside better productivity, markets may dial back aggressive RBA tightening bets, tempering AUD upside.
What will the RBA focus on in this report?
The breadth of domestic demand and any signs of productivity improvement will be key. The RBA will also watch unit labor cost dynamics for confirmation that inflation can moderate without stalling growth.
Why does the distinction between headline and underlying growth matter?
Large, lumpy capex items can distort quarterly GDP. Stripping those out provides a clearer read on the economy’s core momentum, which Westpac still sees as solid at 0.6% q/q.
What are the main risks to the outlook?
Global growth headwinds, China-sensitive commodity swings, and domestic consumption resilience. Year-end liquidity can also amplify FX and rates moves around the release.
When will the data be released?
Australia’s National Accounts for the September quarter are due on December 3. Coverage and analysis will follow on BPayNews.
