Daily Commentary BY THE CURVE TEAM –

Australia Equals Growth Record

8th of June, 2017

The Australian economy extended its remarkable run of growth, expanding by 0.3% in the first quarter of this year. Australia has now equalled the Netherlands record run of 103 quarters of growth without a recession and is a good chance to take out the record next quarter. However the soft result saw the annual pace of growth slow to its lowest level since the GFC.

Yesterday’s release was smack bang on the median market estimate as the increase in inventories and a moderate rise in consumption helped to offset the drag of net exports.

The inventory build and fall in net exports go somewhat hand in hand with mining inventories posting the largest percentage increase over the quarter. Theoretically these inventories should become exports over the months as export activity picks back up following the weather related interruptions.

The 0.5% increase in household consumption is a welcome surprise but poses cause for concern. Record low wage growth, which fell to an annual rate of 1.5% in the national accounts, was offset by yet another fall in the household savings rate. This is unsustainable over the medium term and is why the RBA repeatedly pays so much attention to wage growth.

Emphasising how weak the result actually was, GDP per capita actually fell over the quarter, with the annual rate of per capita growth falling to 0.2%. With immigration currently a hot topic, especially in the context of housing affordability, relying on immigration to prop up growth could also prove elusive going forward.

The data is unlikely to have an impact on the outlook for interest rates in the near term. Governor Lowe in his statement on Tuesday said the RBA still expected growth to pick up despite a slow start to the year. I will look at the impact of GDP on the longer term outlook for interest rates in next Tuesday’s Curve Monthly Insights.

David Flanagan

Director - Interest Rate Markets