Brace for the first quarter of negative economic growth in five years, and only the fourth in Australia's enviable run of 100 quarters without a recession.
Disappointing key data on Tuesday prompted economists to lower their already bearish predictions for third-quarter gross domestic product (GDP).
The median forecast in a survey by Bloomberg was for a 0.1 per cent contraction over the quarter, down from the previous forecast of 0.2 per cent growth, which was already sharply lower than the 0.5 per cent rise posted in the second quarter.
However, a single quarter of negative growth doesn't yet spell recession, which is conventionally defined as two consecutive quarters of contraction.
Tuesday's components of GDP calculations - government spending and net exports - both disappointed on the low side and were expected to shave a combined 0.3 percentage points off third-quarter GDP, which is due to be released on Wednesday.
Other data releases, including investment spending and construction work done, also disappointed, all but cementing a negative quarterly print, UBS economist Scott Haslem said.
"Notwithstanding a healthy rise in the income side of the accounts from the terms of trade and better wage income, the surprisingly co-ordinated weakness across public capex, private capex and resource export volumes in the third quarter likely presents too great a headwind for as yet unknown household consumption in the third quarter," he said.
UBS has revised its forecast from 0.2 per cent growth to negative 0.2 per cent, suggesting the annual pace of growth will slow sharply from its above-trend 3.3 per cent in the June quarter to just 2.1 per cent in the September quarter.
If the economy did go backwards, it would serve as a wake-up call for Canberra, said CommSec chief economist Craig James, who is predicting a 0.1 per cent rise.
"The message from consumers and businesses is that the major parties need to flesh out reforms, especially on taxation, that will give Australians confidence to spend, invest and employ."
The Reserve Bank didn't yet have the final GDP data when it decided to keep the cash rate on hold at 1.5 per cent on Tuesday, but it did know that the components pointed to a slowdown and it didn't seem too fazed.
"Some slowing in the year-ended growth rate is likely, before it picks up again," RBA governor Philip Lowe said in the statement explaining the board's decision.
And indeed, most economists reckon the third-quarter slump will be a bit of an aberration, coming after two quarters of surprisingly strong growth and before the latest mini-rally in commodity prices works its magic in the national accounts.
"While the slowdown in growth looks likely to come as a surprise to the RBA, whose forecasts imply (annual) growth of around 3 per cent, we continue to expect the RBA to keep the cash rate on hold with an easing bias," said ANZ head of Australian economics Felicity Emmett, who is predicting negative 0.1 per cent quarterly growth.
"Firstly, the soft patch looks likely to be temporary, with recent retail sales strength suggesting that household spending accelerated into Q4. And secondly, the bank seems firmly focused on wage growth and inflation, and on this front the average wages number in the GDP report looks likely to show some modest improvement."
