Aussie GDP crucial today...

Aussie Q2 GDP today, as reported by the ABS, will be crucial for the public economic debate (and monetary policy). A big downside surprise will provide a lot of ammo to the doves. Indeed, a negative print would qualify for a technical recession. An upside surprise--with no help at all from net exports (see below)--would blow near-term rate cuts out of the water, subject to Q3 CPI (and maybe unemployment). We know that the slower-than-expected rebound in coal volumes in Q2 combined with very strong growth in imports has resulted in net exports knocking off 0.5ppts from Q2 GDP. This was previously expected to be a positive contributor, and makes an upside surprise harder. We also know that public sector demand will be a drag on GDP. On the other hand, inventories will add 0.8ppts. Some of the big questions about the Aussie economic motor that will be addressed by these data include:

1/ What revisions have been made to the Q1 results, and, in particular, Q1 domestic demand?

2/ Is retail spending as weak as the monthly surveys imply? The GDP retail data are far broader, covering around 60-70% more sectors than the monthly data.

3/ Is domestic demand as weak as some pundits and vested interests claim? In particular, how quickly did domestic demand rise/fall over the first six months of 2011?

4/ Is household disposable income falling, or rising? In this context, one can ignore the December 2009 ABS survey data that some have clutched at, which covered the (now dated) years of 2008 and 2009. We are much more interested in what is happening in 2011, and to a lesser extent, 2010.

5/ What happened to the GDP measures of wages and labour unit costs over the second quarter?

Enclosed below are the forecasts for GDP from the big economic houses. Anything below 0.8ppt would be a negative surprise, while anything above 0.9ppt would be a positive surprise, IMO.