ANZ Sees Australia's Economy Holding Steady Despite Inventory Drag

According to ANZ, one of Australia's largest banks, the country's economy likely 'held up' in the June quarter. The bank points to strong sales and higher company profits as signs that underlying activity was steadier than the GDP headline might suggest.

The data shows that sales were strong enough to support ANZ's production-side GDP estimate, and company profits rose 1.8% over the quarter (7.4% year-on-year). Additionally, wages and salaries increased by 1.4% over the quarter (5.7% year-on-year), indicating that households' income didn't decline.

However, ANZ expects private non-farm inventories to shave about 0.3 percentage points off June-quarter growth. This is a larger hit than previously assumed, but it's worth noting that an inventory drawdown often reflects businesses selling goods they already had on hand rather than a sudden drop in demand.

As a result, if sales stay firm, slimmer stock levels can force restocking later, turning the same component from a drag in June to a lift in the September quarter. This matters for markets as it could lead to a more favorable GDP print in the next quarter, which in turn could reduce downside scenarios for the Australian dollar and shorter-dated Australian government bond yields.