Daily Commentary BY THE CURVE TEAM –

Growth Pulse Remains Weak

6th of June, 2019

Australia’s economy continues to limp along according to the latest growth figures. The RBA is doing what it can but unless the government lends a hand, risks remain to the downside.

The weak growth in the Australian economy in the second half of 2018 has spilled over into 2019. The latest figures from the ABS show that the economy only grew by 0.4% in the first quarter, falling short of expectations once again. The annual rate of grow slowed to 1.8%, the slowest pace since the GFC, with the economy only growing 0.9% over the past 9 months.

Following the previous GDP release, much of the focus was on the per captia recession after GDP per capita fell for two consecutive quarters. That trend continued in Q1 with growth per capita going backward for three consecutive quarters for the first time in 36 years.

By component, government spending continues to be the biggest driver of growth. Spending on infrastructure and health, such as the NDIS, continue to support overall growth. Meanwhile household consumption continues to slow thanks to persistently low wage growth and the wealth effect of falling house prices. These headwinds for households has also seen the household savings ratio rise.

With growth underwhelming yet again, there is a real risk that growth undershoots the RBA’s already downgraded growth forecasts. In the May forecast update, the RBA lowered their expectations for growth with the annual rate expected to slow to 1.75% by mid 2019. In Q2 last year, the economy grew 0.9% which means growth will need more than double this quarter for the RBA’s forecasts to be met.

The RBA has made it clear they need support from the government in the form of more fiscal stimulus and policy reform to help lift the long term growth profile for the Australia economy. Until we see more urgency from the government, the pressure will be on the RBA. This will mean the risks remain to the downside for monetary policy.

David Flanagan

Director - Interest Rate Markets