Daily Commentary BY THE CURVE TEAM –

Exports Help Boost GDP

7th of June, 2018

The Australian economy extended its world record breaking run of uninterrupted growth in the first quarter thanks to a solid rise in exports. The better than expected result will be welcomed by the RBA but the breakdown of the data highlighted the risks to the outlook.

The economy grew a solid 1% in the first quarter and extended its run of growth without a recession to a staggering 106 quarters. The better than expected increase was underpinned by growth in exports which bounced back after supply directions last year. While exports accounted for half the 1% rise, there was also another solid contribution from government spending.

The dichotomy between businesses and consumers was starkly evident in the break down of the numbers. While business profits and their wages bill were up more than 5% over the past year, consumers continue to miss out. Compensation per employee was only up 0.5% for the quarter which is consistent with what we have seen in wages data.

Businesses are clearly enjoying the bigger pie as above average population growth continues to support the economy while consumers continue to get a smaller piece of that pie.

It was interesting the ABS actually commented on the breakdown of consumption, saying most of the 0.3% increase for the quarter “was driven by rises in non-discretionary components such as insurance and other financial services (0.7%), food (0.5%), and electricity, gas and other fuels (2.3%)”. To hammer home the point, they added “there were falls in hotels, cafes and restaurants (-1.8%) and alcoholic beverages (-2.0%).”

Adding to the risks to consumption was that despite the weakness for the quarter, the savings rate continues to fall. It now sits at 2.1% which is the lowest level since the GFC. With wages growth set to remain low for some time and credit becoming harder to come by, the squeeze on the consumer is expected to continue and it is why the RBA continues to point to that risk to the outlook.

There is little implication for monetary policy from yesterday’s release. The RBA will be happy with the pick up in growth. We should continue to see solid growth outcomes underpinned by exports over the period ahead but it isn’t exactly going to feel like boom times for the consumer.

David Flanagan

Director - Interest Rate Markets