Data for the March quarter published by the ABS this morning points to a soft GDP growth outcome in Australia to start 2025. Weak inputs from the business, government and external sectors will likely see estimates for March quarter growth revised lower from the current expectation of around 0.4% going into tomorrow's National Accounts.
The Trump administration's liberation day tariffs juiced up growth in many countries in the March quarter as export orders to the US were brought forward ahead of the April 2 announcements. Australia was not one of these countries, though non-monetary gold exports did surge to record highs as US-bound orders in the quarter eclipsed their total from the previous four years. But, overall, both export (-0.8%) and import volumes (-0.4%) fell in the quarter, with the ABS estimating that net exports deducted slightly from GDP growth (0.1ppt) in Q1.
Global trade uncertainty has led to volatility in inventories, but again Australia did not see any major shift. Inventories overall lifted by 0.8% in the quarter and look like adding very modestly (0.1-0.2ppt) to GDP growth.
Australian business conditions have been soft amid the uncertainty from offshore and from households that have been kept quiet by cost-of-living pressures and higher interest rates. Sales volumes contracted in Q1 (0.1%) in the March quarter; however, much of that was driven by the mining sector (-3.4%). Still, sales growth across the non-mining sector is running at a subdued pace, up 0.4% in the quarter and 1.2% through the year.
Business profits have faced a range of headwinds from weaker demand, rising costs and declining commodity prices. The latest figures continue to reflect these dynamics. Profits were down 0.5% in the March quarter (-0.9% if adjusted for inventory valuation changes) contracting by 5% through the year. As with sales, the weakness centres in the mining sector where falling commodity prices have taken profits lower (-6%q/q, -19.2%Y/Y). By contrast, profits in the non-mining sector remained on the rise with a lift of 3.1% in Q1 (6.2%Y/Y). A resilient non-mining sector continues to support the labour market; the wages bill was up 1.4% in the latest quarter and 5.7% over the year.
Public demand has been the stronghold for growth for well over a year, bolstering the economy from weakness in private consumption and investment. However, the momentum from public demand ran out of steam in the March quarter, declining by 0.5% and likely to deduct in the order of 0.2ppt from GDP growth. Government spending (in real terms) was flat in the March quarter, indicating that recovery spending from Cyclone Alfred (early March) has yet to show up. Meanwhile, public investment - despite a large pipeline of activity - took a step back in the quarter (-2.3%).
