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Australia GDP rises the strongest in 2 years

Jun 12 2018, 03:37 PM (+06) | Orbex.com

The first quarter GDP figures from Australia showed a surprise as the economy was seen running at a quarterly pace of advance for 27 consecutive months without a recession.

Data from the Australian Bureau of Statistics (ABS) showed that the nation's gross domestic product (GDP) increased 1.0% in the first quarter. This followed an upward revised GDP of 0.5% in the fourth quarter of December 2017. On an annual basis the nation's GDP advanced 3.1% which was followed by a 2.4% increase from the fourth quarter of 2018.

The pace of gains in the GDP was seen rising at the fastest pace since the second quarter of 2016.

The GDP data was seen beating forecasts of a 0.9% increase and a 2.8% annual GDP increase.

Driving GDP data was the exports, which increased sharply followed by an increase in business investment and government spending. On the downside, the outlook was offset by a decline in household spending.

Household spending was seen rising at a faster pace across all sectors including insurance, transport, health care and utilities sector while spending on alcohol, tobacco and eating out fell sharply.

The consumer spending data showed that savings ratio fell to 2.1% compared to 2.3% that was registered in December.

As far as expenditure was concerned, the first quarter data was seen to be subdued and economists expect that this could be a key component to focus on.

Household consumption which accounts for nearly 57% of the gross domestic product contributed just a mere 0.2% to the GDP growth during the quarter.

The real net disposable income was seen rising 2.5% on the year.

The decline in consumer spending comes amid higher household debt and wage growth was seen rising at the slowest pace. Australia's unemployment rate continues to remain high at 5.5% and amid the conditions; consumer spending is expected to remain bleak.

Economists expect that real income growth and a weaker housing market is expected to keep spending subdued. Housing prices also continue to weaken for successive months amid tighter lending standards.

The data comes following the RBA’s monetary policy meeting held last week. The central bank left interest rates unchanged at 1.50% and said that the current rate of interest justified sustaining the economy.

The RBA is expected to keep interest rates unchanged for the remainder of this year. Recent data showed a pick up, including the GDP figures. However, wage growth and inflation remained weak which keeps the monetary policy in check.

Earlier in the week, the Australian retail sales report was released. Official data showed that retail sales in Australia rebounded in the month of April. Most of the gains came due to the warmer weather. Headline retail sales were seen rising 0.4% on a seasonally adjusted basis.

This was higher than the forecasts of a 0.3% increase.

April’s retail sales data was seen rising at the highest pace since October last year. This followed a decline of 0.8% in the month of March.

Retail sales was seen rising across all sectors including retailing which was the highest at a 0.9% increase followed by food retailing, household goods. There were declines in clothing, footwear and personal accessories.

On an annual basis, retail sales were seen slowing to 2.6% compared to 3.2% in March.

While for the moment, the economic indicators showed a modest uptick the RBA is likely to remain on the sidelines for the near future until there is evidence of further economic growth.

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