- It looks like Australia’s economy grew around 1% in the March quarter, up from 0.4% in the final three months of 2017.
- Some, such as Westpac, are forecasting an even stronger increase.
- Even if GDP growth does expand strongly, economists at the Commonwealth Bank don’t believe it will have any major implications for the RBA.
All of Australia’s March quarter GDP inputs have now been released. All that’s now left is the main event.
After a slowdown in the final three months of 2017, impacted in part by weather disruptions to Australia’s main commodity exports, it looks like economic growth recovered in early 2018.
And not by a little, but a lot.
CBA senior economist Gareth Aird is one analyst predicting a stonking pickup in growth, forecasting that real GDP grew by 1% in the first three months of the year.
“Based on the economic information to date, we have forecast Q1 GDP growth at 1.0%,” he says.
“If correct, annual growth will step up to a little above trend at 2.9%.
“This makes sense given the big lift in employment growth over the past year.”
Aird says based on data received so far, and a few assumptions, it’s likely that growth was broad-based during the quarter.
“The data is expected to show a modest lift in household consumption after a solid Q4, a lift in residential construction because of a solid rise in alterations and additions, a modest increase in business investment, a lift in public consumption partially offset by a fall in public investment and a 0.3ppt contribution to growth from net exports,” he says.
This table from Aird shows the expected breakdown of real GDP from an expenditure perspective.
There’s no shortage of forecasters like Aird predicting a strong acceleration in real GDP when Australia’s national accounts are released tomorrow.
Westpac is looking for an even larger increase, forecasting a gain of 1.1%.
ANZ, JP Morgan, the NAB and RBC Capital Markets are also optimistic, forecasting an increase of 0.9%, 0.8%, 1% and 0.8% respectively.
While quarterly growth of around 1% would be a welcome result, Aird says it’s unlikely to shift the dial when it comes to the outlook for official interest rates.
“Real GDP in line with our call would be a touch stronger, though broadly in line with the latest RBA forecasts contained in the May Statement on Monetary Policy,” he says.
“In that context, the GDP data shouldn’t shift the needle for the near term outlook for monetary policy.”
Instead, he says Australia’s labour and housing markets will likely determine if an when the RBA begins to lift interest rates.
“Trends in the labour and housing market are the ones to watch currently for policy,” he says.
“At this juncture they are consistent with the cash rate staying on hold for the remainder of the year.”
Australia’s Q1 GDP report will be released at 11.30am on Wednesday, June 6.
Helping to explain the divergence across economists forecasts, household consumption — the largest part of the economy at around 60% — won’t be known until the actual GDP report is released.
Real retail sales increased by 0.2% over the quarter, a weak result after a strong end to 2017.
Whether that is replicated in consumption of services — a far larger component than retail sales — will determine whether quarterly growth was good or great.
