The RBA had been expecting a slowdown but this is much deeper than forecast. The RBA believes the slowdown may be temporary, but its broad based nature and depth suggest it faces strong headwinds. A downside surprise to the RBA's implied forecast of around 0.5 per cent in Q4 could see the RBA ease further or go to an easing bias. With economic growth well below trend and interest rates low, the case for fiscal tightening needs to be revisited.

Su-Lin Ong, RBC:

To our mind, the Q3 accounts neatly capture a key thematic for next year - a mixed picture with weaker domestic demand against a stronger export/external sector. The former appears to be playing out a little earlier and suggests a weaker starting point for domestic demand and overall growth than previously thought.The RBA's GDP forecasts from barely a month ago which were already optimistic are likely to be revised lower. Coupled with likely unchanged inflation forecasts, this will be consistent with a mild easing bias.

Paul Bloxham, HSBC:

The Q3 results pre-date much of the ramp up in bulk commodity export prices and there is a significant ramp up in export volumes yet to come from capacity that has already been built. The strong rise in bulk commodity prices is set to support a boost to incomes in Q4. Timely indicators of business sentiment, retail sales and job advertisements suggest a lift in growth in Q4. In short, we think this will be a one-off decline, with growth returning in Q4.

Shane Oliver, AMP:

While the GDP contraction in the September quarter will no doubt invite talk of a recession (defined as two consecutive quarters of falling GDP) growth is likely to bounce back in the December quarter avoiding a recession so there is no reason to get too gloomy. Growth is still likely to be fragile and constrained. In an ideal world now would be a time for some fiscal stimulus focused on infrastructure spending. But with public debt well up from pre GFC levels and the Government focused on reducing the budget deficit and the (increasingly difficult) task of maintaining Australia's AAA credit rating this looks unlikely. As such the pressure is likely to remain on the RBA.

Ben Jarman, JPMorgan:

The more sobering news was that after a lackluster 2Q, household consumption grew only a meagre 0.4 per cent in 3Q. There are temporary drags in the 3Q report which should offer some prospects for rebound in 4Q, and into 2017. Net trade was a drag of 0.2 percentage points which cuts against the likely trend, given coming supply growth in LNG, and dwelling investment took off 0.1%-pt as the ABS reports that bad weather interrupted work. Also government infrastructure work should be adding to growth in 2017 given the pipeline of road and rail projects. On the early tracking, the bounce-back in 4Q GDP is unlikely to be sufficient to avoid downward revisions in the RBA's February SoMP.

Felicity Emmett, ANZ:

We expect that today's numbers overstate the underlying weakness in the economy. To a large degree the weak result represents a confluence of downside surprises, some of which will be reversed. Housing is likely to rebound given the amount of work in the pipeline, resources exports should grow strongly given ongoing expansion in LNG supply, and profits growth should pick up supported by higher commodity prices and a bounce back in small business profits. Moreover, consumer spending (which accounts for around 55% of GDP) looks likely to pick up given the acceleration in retail sales over the past couple of months. Overall though, the report does suggest some loss of momentum in the economy, consistent with the slowdown in employment growth.

Rahul Bajoria, Barclays:

We believe the central bank will look beyond today's weak GDP print, especially given the more neutral tone of its recent policy statements. Australia's economic outlook will benefit from improving terms of trade, and unless there is significant AUD appreciation, we think bias within the central bank is to keep rates unchanged. Moreover, with labour market data and forward-looking surveys indicating resilient growth, we expect the RBA to stay on hold throughout 2017.

Scott Haslem, UBS:

Today's 0.5% drop in Q3 GDP reveals an economy that's lost momentum. This comes after a year of strong growth prints, while weather has clearly played a role. But given subdued income, were the jobs market to weaken further & unemployment rise for a few months – & core inflation print below 1½% y/y next year – the hurdle lowers for the RBA to add support to near term growth via more cuts. There would still be the question of what this is trying to achieve, given housing has already re-strengthened and the AUD has been relatively unresponsive. We expect the RBA will increasingly focus on the improving growth outlook for 2017, and choose to keep rates on hold at 1.5% for the foreseeable future.

Annette Beacher, TD Securities:

What happened to GDP? It was a perfect storm of dips and pauses all in the same quarter, of which some are temporary, some are not. The RBA Board yesterday elected to end the year in wait-and-see mode, but is now likely to be anxiously data-watching for the degree of the December quarter turnaround.