While markets including the ASX have shot higher following Donald Trump's surprise election win in the US, some economists suggest Australia might be in for a rude shock.
A continued unwind in resource investment, contracting activity in the housing sector, and weaker household incomes are on track to push Australia's economy to shrink over the three months to September 30, argues Morgan Stanley.
"We have been arguing that Australia's 'real GDP' of 3.3 per cent year-on-year feels overstated," say the team of analysts, led by equity strategist Chris Nicol, who suggest Australia's GDP growth may come in at -0.3 per cent over the June quarter – well below the consensus forecast for 0.5 per cent growth. It would also be just the fourth quarter in the past 100 to post a contraction.
This perspective comes in sharp contrast to Goldman Sachs, who are bullish on the outlook for the Australian economy. The construction figures released on Wednesday surprised economists, showing that residential construction slowed, and the broker's analysts say red-hot property prices have been propping up the economy, but this is fast running out of gas.
Residential construction declined 3.1 per cent this quarter which brought annual growth down to 6 per cent from an average 12 per cent in the prior two years, and the analysts suggest the housing cycle's growth contribution has peaked.
The analysts "see a hard landing for the apartment cycle" weighing on the nation's economy in the second half of 2017 and into 2018.
But the unwind in resource investment is the main reason the GDP print may drag.
Morgan Stanley points to RBA assistant governor Christopher Kent's speech on Tuesday night where he said, "the improved outlook for commodity prices is not likely to lead to a noticeable pick-up in mining investment".
Morgan Stanley argues that Australia's "real GDP" of 3.3 per cent looks overstated and instead we are tracking for a negative growth print in 3Q.
The researchers say one-off events contributed to the higher readings in the first two quarters of this year. A benign cyclone season benefited exporters in Q1 and a surprise boost to public spending underpinned the positive reading in Q2.
But the team suggest that weak income growth combined with rising indebtedness will weigh on the Q3 print, and underemployment suggests wages are unlikely to pick up next year.
Wage inflation has fallen to a record low of 1.9 per cent and retail volumes fell 0.1 per cent over the September quarter.
Capital Economics chief economist Paul Dales says wage inflation might pick up, albeit very slowly.
"This is the million dollar question at the moment," says Mr Dales. "The cyclical drag on wage growth should be easing as the economy has performed reasonably well over the last few years, and consumer confidence has picked up a bit, so wages might pick up but very slowly."
Following Wednesday's construction data, Mr Dales remodelled his growth forecast for this quarter, reducing it from 0.5 per cent to 0.0 per cent.
"I expect the economy will grow somewhere between there," he said.
Morgan Stanley expects the Australian dollar to continue its slide as investors take cues from national accounts data rather than labour market figures. Should GDP come in lower than expectations, the team expect the Reserve Bank of Australia to keep rates on hold for a long while yet.
Markets have almost entirely priced in a rate rise in the US giving the greenback a significant boost and repricing the Australian dollar.