Aussie GDP beats expectations

Pent up demand and the lagged effects of stimulus measures for household spending is still powering the Australian economy along. But with total (real, seasonally adjusted) GDP of AUD501bn in 1Q21, more than the previous pre-Covid high of 497bn in 4Q19, the period of most rapid catch-up has now probably passed. GDP growth is likely to be driven less by "recovery" and "stimulus" in the coming quarters, and more by underlying growth prospects.

That could still see full-year 2021 GDP growth exceed 5%. We've revised up our 2021 full-year GDP forecast to 5.2% on the back of these figures, and we are now also forecasting 2.9% for 2022 GDP growth too (up from 2.6%). Yesterday, the RBA released its own GDP growth estimates for 2021 and 2022 which were 4.75% for 2021 and 3.5% for 2022.

Consumer spending, which grew by a disappointing 1.2% contributed 0.7ppts to GDP growth. On the other hand, private investment (including dwelling investment and business investment) grew by 5.3% and contributed 0.9ppts to growth.

Compare that with the earlier stages of the recovery: September quarter (consumers 4.3ppts and investment 0ppts); and December (consumers 2.3ppts and private investment 0.7ppts).

As widely expected OPEC+ confirmed yesterday that they will go ahead with their planned production increase over the next 2 months. This should bring an additional 700Mbbls/d of supply onto the market in June, and a further 840Mbbls/d in July (this includes the return of the additional voluntary cuts made by Saudi Arabia).  

Despite this confirmation, ICE Brent managed to settle above US$70/bbl yesterday for the first time since May 2019. The market appears focused on the more constructive outlook for later this year, with OPEC+ of the view that the market will see significant stock drawdowns between September and the end of the year.

While the market has more clarity around what OPEC+ will do over the next 2 months, the group gave little away on what they plan to do after July.

However, with their own estimates suggesting large stock drawdowns later in the year, we would expect that they increase output further through the year. The one key uncertainty for OPEC+ though is Iran and the timing around the potential lifting of US sanctions.

Clearly, any supply increases from Iran in the coming months will be something that OPEC+ will have to consider when it comes to their production policy. Our view on the oil market remains unchanged following the OPEC+ meeting, and we continue to believe that ICE Brent will average US$70/bbl over 2H21.

Further support for the market yesterday came from comments from the IEA, with the agency of the belief that we could see global oil demand returning to pre-pandemic levels in a year, which would be quicker than many in the market are expecting. The IEA also warned that oil prices could strengthen further unless OPEC+ bring more supply back onto the market later in the year.