The sluggish GDP figures, particularly the weakness in household consumption, shows the RBA would have been justified in cutting cash rates faster.
- Household consumption is a major problem – it grew weakly by 0.26% in the March quarter with annual growth falling for the third quarter in a row to be 1.82% in March. These are the lowest rates of growth since 2013.
- In per capita terms, household consumption was flat in the March quarter and is up about 0.2% for the year to March.
- Dwelling investment was an ongoing area of concern, with a fall of 2.5% in the March quarter to be down 3.1% for the year to March.
- Government Consumption also came off, at 0.84% growth. This has fallen from 2% in December quarter.
- DrPublic investment (gross fixed capital formation) grew by just 0.4% in the March quarter, after recording growth of 5.7% and 0.8% in the preceding two quarters, and is now about 6.84% higher than a year ago.
- Private non-dwelling construction grew by 2.1% in the March quarter but remains almost 4.7% below the level recorded a year ago
- Private machinery and equipment investment grew by a modest 0.5% in the March quarter to be up almost 1% for the year to March
- Export growth recorded a modest rebound, with growth of 1% in the March quarter, but only 1.72% up on a year ago. Next exports contributed about 2.6bn to GDP (or 0.23% to GDP growth)
- The rebound in the terms of trade continued with positive growth of 3.1% recorded in the March quarter and annual growth running at 6.1%.
Today’s GDP figures show that the RBA may have missed an opportunity to cut rates more aggressively and use its limited monetary firepower in a big bang rather than spreading it over a few months and dissipating the impact. It also puts an onus on the re-elected government to bring forward fiscal stimulus to the economy, by getting new targeted infrastructure projects up and running and ensuring the proposed tax breaks are brought into law soon – as monetary policy won’t do all the heavy lifting.
Government consumption figures fell, with Defence capex and recurrent expenditure notably stalling. The upside is that government finances are rebuilding, so scope for fiscal stimulus going forward is greater – and the re-elected government may need to turn the tap back on over the next six months.
It is true that there are some positive signs since the election with more inquiries on housing, mortgages and cars, but today’s figures do point to underlying weaknesses in the economy, and the need for initiatives to address the persistent problem of low-ish productivity in Australia.