In Australia, Q3 GDP fell short of expectations, rising just 0.4% (2.1%yr). However, much of the disappointment was tied to a run-down of inventories, masking a much stronger showing for domestic demand, up 1.2% (2.6%yr). The public sector added to growth via consumption and investment, although the scale of support offered through both channels is easing as cost-of-living relief measures wind up and existing infrastructure projects progress.

New business investment was in the spotlight in the private sector, surging 3.4% (3.8%yr). Data centres and aircraft were key drivers, but there are some early hints of a broadening in the investment pulse across both consumer and business-facing sub-sectors. This trend has positive implications for supply capacity and productivity which are explored in more detail by Chief Economist Luci Ellis in this week's essay.

Consumer spending was also a key contributor, lifting 0.5% (2.5%yr), spot on our expectation. This was mostly driven by spending on essentials, including electricity and superannuation fees – the latter owing to Q3's superannuation guarantee increase. Although discretionary spending was a touch softer, both our internal data and recent ABS data point to a pick-up in this category into year end. Going forward, one of the key risks is the fading of the tailwinds associated with easing inflation, interest rate reductions and tax cuts for disposable incomes and spending.

The boost to wealth from rising house prices is also important to keep in mind, the Cotality index surging another 1.0% (7.1%yr) in November. Recent gains have been driven by lower cost tiers of the market, suggesting affordability remains a constraint but that households continue to adjust expectations to transact. Dwelling approvals have largely moved sideways this year, but the pipeline remains robust and should go some way to alleviating tight supply in coming years. For our in-depth view of the housing market, see the latest Housing Pulse.

Before moving offshore, a final note on trade. Partial data released earlier this week showed the current account balance widened slightly in Q3, from –$16.2bn to –$16.6bn, chiefly driven by a larger trade surplus, a trend that looks to have persisted in the goods balance into October. In real terms, the external sector subtracted 0.1ppts from GDP in Q3. This speaks to the longer-run structural headwinds for 'traditional' commodity export channels; however, that does not preclude burgeoning areas of opportunity gaining scale – services exports of software licensing being an example.

In the US, the ISM Services PMI rose 0.2pts to 52.6pts in November, although that still leaves all sub-components excluding prices well below their ten-year pre-COVID average. There were notable increases in the backlog of orders (+8.3pts), imports (+5.2pts), inventories (+3.9pts) and supplier deliveries (+3.3pts), while new orders (-3.3pts) and prices (-4.6pts) both exhibited falls. The sizeable fall in the prices component primarily reflected declines in gasoline prices. The manufacturing PMI meanwhile declined 0.5pts to 48.2pts, reflecting falls in new orders (-2pts), employment (-2pts), supplier deliveries (-4.9pts) and the order backlog (-3.9pts). The prices component increased by 0.5pts to 58.5pts but remains well off its highs. All told, both surveys point to sub-par momentum, but not aggregate contraction.

In Europe meanwhile, the flash estimate for November indicated prices fell 0.3% in the month, reflecting falling energy costs. In annual terms, inflation accelerated to 2.2%, backed by a 3.5% gain in services prices. Looking ahead, there are some downside risks to the headline component following a decline in wholesale gas prices. In a speech this week, ECB President Lagarde noted that underlying inflation pressures are consistent with achieving the inflation target, but that risks to the outlook remain two-sided.

Source: Westpac Banking Corporation