Time for a market update.

The dollar is still down around 0.5% at US74.30c as investors weigh up the increased possibility that the RBA will cut interest rates next year. Perhaps even twice, some think.

The share market meanwhile, is much more positive and the ASX/S&P200 has put on 0.8% today to sit at 5476.3 points.

Stock markets across the region were mostly positive thanks to the Dow Jones average closing at another record high on Tuesday night. The Nikkei was up 0.6%, the Hang Seng 0.35% but the Kospi in Korea is down slightly.

Steven Knight of the brokerage Blackwell Global has a broader analysis of the outlook for Australia, which he decribes as “vulnerable” because of the 12th successive quarterly drop in private investment.

He thinks the pick up in oil, coal and iron ore prices in the past six months will cushion any continued lack of investment but the question is what happens when, if seems likely, demand for the big commodities levels off again:

This highlights the lack of GDP diversity in the Australian economy and the fact that transition of capital to the services and retail industry has been sluggish at best. Australian growth needs to come from spending, investment and increased employment and it’s difficult to see where that is likely to come from with expectations at the currently low level.

Subsequently, today’s GDP release is likely to be seen as a wake-up call to both the markets and the Reserve Bank of Australia. Although the RBA recently elected to keep the cash rate on hold at 1.50% the reality is that the latest round of data all but assures near term rate cuts. My view is that we are likely to see 50bps shaved from interest rates over the next six months in an attempt to provide some much-needed stimulus.

The Guardian columnist Stephen Koukoulas agrees with the folk at Capital. He’s just filed his thoughts on the GDP figures and points the finger at policy failures by the Coalition and the Reserve Bank – the former for cutting spending into a downturn in the economy and the latter for failing to spot the threat from deflation quickly enough and leaving rates too high.

He writes:

Quite obviously, the RBA should have cut interest rates earlier and harder, not least to free up cash flow for the business sector and indebted households but also to take some air out of the Australian dollar, which has been strong against most global currencies.

It should and probably will cut interest rates again but will likely wait until its next meeting in February to do so. Better late than never.

The question of where interest rates will go from here is likely to be much debated from now until the next Reserve Bank meeting in February.

Craig James of CommSec said earlier that the GDP print meant that the recent talk of a possible rates hike was off the table. This what he said in his note:

The Reserve Bank warned [on Tuesday] that annual economic growth would slow before it picked up in 2017. That is our expectation also. The economy should grow near its ‘potential’ rate of 3% in 2017. We continue to believe that interest rates will remain on hold in coming months. But no one will be thinking of rate hikes any time soon.

The Coalition will be desperate to avoid Australia entering a slump with another negative print for the fourth quarter.

The country’s prized triple-AAA credit rating is already under threat and Scott Morrison will do his bext with his midyear fiscal and economic outlook on 19 December to persuade the rating agencies and the markets that he has the situation under control.

Most analysts, including Shane Oliver from AMP and Craig James from CommSec, agree that today’s number is likely to a one-off and that Australia will bounce back into positive territory next time.

Ben Jarman at JP Morgan in Sydney is a little more circumspect. While he agrees that the weather-hit building industry should bounce back in the fourth quarter, household spending is weak and could drag on the overall figure.

Consumer spending growth is 2% annualised over the last six months. This is occurring at a time where the business surveys have already soured somewhat and retail spending momentum has been fading.

The breadth of the contraction in construction activity does indeed seem consistent with weather effects. At the least this makes a quarterly GDP growth outcome of 1% for 4Q17 achievable. And there is precedent for output consistently surging back after weather-related disruptions over several quarters: after a slight 0.2% contraction during the 2011 Queensland floods, which badly disrupted coal export output, GDP growth averaged 1.1% for four straight quarters.

However, the level of weather disruption did not appear to be anywhere near that scale on this occasion, and the underlying trend in domestic demand back then was much stronger, as mining capex was in full flight. So much as the RBA governor yesterday positioned for a temporary lull in growth, with inflation very weak the rebound needs to be fast, and convincing. On the early tracking, the bounce-back in 4Q GDP is unlikely to be sufficient to avoid downward revisions in the RBA’s February statement of monetary policy.

Great chart courtesy of our friends at Business Insider showing the quarterly dips of the past 25 years.

Looking on the bright side, there are good reasons to think that the decline in GDP won’t be repeated in the December quarter and that Australia will avoid slipping into recession.

The main reason is that the terms of trade improved by 4.5% in the third quarter thanks to rising commodity prices. That trend has continued in recent weeks and should benefit the bottom line when the next round of GDP figures come out in the new year.

Shane Oliver, chief economist at AMP Capital, said:

I see this as a one-off because some of the factors which dragged down growth were reversed in the current quarter. Housing and public investment will bounce back, retail spending has recently picked up pace and the boom in resource exports will resume.

The GDP contraction has taken a chunk out of the Aussie dollar. It has fallen 0.46% against the US dollar to US74.26c.

It’s also fallen against other currencies, including a drop of 0.31% against the pound. It’s buying 58.65p at the moment.

The 0.5% contraction has surprised a lot of people because the consensus forecast among economists was 0.2%, according to those surveyed by Australian Associated press.

TD Securities chief Asia-Pacific macro strategist Annette Beacher told AAP that the Reserve Bank would now be trying to work out whether Australia was halfway to a recession, which is defined by two quarters of economic contraction.

I think they’ll be spending the afternoon figuring out to what extent are these one-offs, and can we get rebound in [the fourth quarter].

Will private consumption rebound, will the dwelling sector rebound, will the public sector rebound? They’ll be spending more time looking at that.”

However, Beacher said she thought the dips across the different sectors such as construction and federal capital spending, were more likely an unfortunate coincidence that makes a Christmas recession unlikely.

Morrison says the figures aren’t just a wake up call, but rather serve as a “demand” for everyone else to support his policies for jobs and growth. Here’s more from his opening remarks to the press conference which has just ended:

The Turnbull government will never take economic growth for granted, ever. In the 12 months to the end of September our economy grew by 1.8%. That’s down from 3.1% achieved at the end of June.

Our growth is still higher than six out of seven G7 economies, second only to the United Kingdom, higher than the US, Canada, Japan, Germany and higher than the OECD average.

The contraction recorded in real GDP in the September quarter is not just a reminder, not just a wake up call or a warning about being complacent when it comes to economic growth. It is a demand to support economic policies that drive the investment needed for job security, the hours and wages that hard-working Australians need to cope with the rising cost of living, especially on electricity costs, and that businesses need to survive in a tough and competieve environment.

Today’s nationals accounts data demmands the support in the national interest for the government’s economic plan for jobs and growth that we outlined this year. It demands it in the national interest.

Good morning and welcome to the live blog on reaction to the surprisingly poor GDP figures from the Australian Bureau of Statistics today.

They showed that the economy shrank by 0.5% in the three months to the end of September, the first negative quarter for five years and only the fourth for more than two decades.

I’ll be bringing you reaction from Canberra and the rest of the country, plus everything from the markets.

Here’s our first news story from Gareth Hutchens in Canberra.