Macro View | James Foster

Independent Australian and global macro analysis

Monday, March 18, 2024

Preview: RBA March meeting

The RBA Board is set to hold its key policy rate at 4.35% at today's meeting (2:30pm AEDT). With recent data coming in broadly in line with RBA forecasts, the focus will be on the tone of the Board's statement and the messages from Governor Bullock in the post-meeting press conference. The Board is holding onto a tightening bias, but inflationary risks are receding with the economy slowing sharply and the labour market easing. 


Today's meeting shapes another case of steady as it goes for the Board. Key data outcomes have been in broad alignment with RBA forecasts and commentary from officials at the central bank has been scarce in recent weeks. The key message from the Board at the February meeting was that it was not yet confident that inflation was heading back to target on a sustainable basismeaning that it could not rule out "a further increase in interest rates". That contrasts with market pricing that is pushing towards discounting two RBA rate cuts in the back half of the year, while many of its central bank peers overseas have moved on from signalling the peak for rates in the cycle and are discussing the timeline for policy easing.    

Key judgments the RBA has made look unlikely to change in light of recent data. Disinflationary trends appeared to remain intact in early 2024 as the headline CPI held at 3.4%yr; however, the January report contained limited updates on services prices, the component of the CPI basket the RBA is watching the closest. Another point the RBA has been strong on is that inflation remains elevated due to demand conditions exceeding the capacity of the economy to supply goods and services. Although I have reservations about that assessment, the RBA has said that this imbalance it has seen is easing as the economy slows. I think this is how the Board will frame its interpretation of what was a weak GDP outcome of 0.2% in Q4 and 1.5% in year-ended terms.

The Board's analysis of the labour market will also be important. Tightness in the labour market clearly eased over the course of 2023 - the 3-month average for the unemployment rate ended the year at 3.9% compared to 3.5% in December 2022 - and wages growth looked to be peaking at just above 4% in the Q4 update received late last month. For the moment, the Board's priorities are on the inflation side of its mandate, but the risks to the employment side look to be increasing. A policy pivot that removes the possibility of further tightening and opens the dialogue to rate cuts probably requires more attention to shift to the risks to the labor market outlook. 

Friday, March 15, 2024

Macro (Re)view (15/3) | Over to the Fed and BoJ

Equity markets were patchy this week as stronger-than-expected US inflation data drove Treasury yields higher and lifted the dollar. The positioning ahead of next week's Fed meeting indicates that markets sense the policy-setting committee may signal fewer rate cuts this year than the 3 currently projected as its central forecast. Outcomes from key wage negotiations in Japan were seen as clearing the runway for the BoJ to exit from negative rates at next week's meeting.  


An interesting Fed meeting awaits next week. Economic activity and the labour market remain resilient and there are signs that the disinflationary process is losing momentum. This economic backdrop has led markets to scale back their expectations for Fed rate cuts from as many as 7 at the start of the year to the 3 signalled by the FOMC in their December forecasts. Much of the interest, therefore, is around whether the FOMC retains this forecast for 3 rate cuts this year in light of recent data. 

This week, February reports for consumer (CPI) and producer prices (PPI) surprised on the high side of expectations. Headline CPI was 0.4%m/m, rising from 3.1% to 3.2% at an annual pace (vs 3.1% exp). This was the strongest month-on-month rise since September, with an uptick in energy prices (2.3%m/m) being a major contributor. However, the core rate also came in at 0.4%m/m (the same as in January), suggesting this was a more broad-based lift in prices, and the annual pace slowed by less than expected from 3.9% to 3.8%yr (vs 3.7% exp). The main concern for the FOMC is the disparity between goods (0.3%yr) and services inflation (5%yr; there is uncertainty that the former has scope to decline much further while the latter continues to run at a pace too hot to be consistent with a sustainable return to the 2% inflation target. 

A slight softening in UK wages data (6.2% to 6.1%yr) and a fall in job vacancies (to 908k) provided signs of easing labour market conditions. Inflation data for February is due out next Wednesday, but the implications for the BoE meeting the following day appear to be limited. Markets aren't expecting the BoE to cut rates until the second half of the year, with policymakers signalling that restrictive monetary policy will be required "for an extended period". The ECB's operational review appeared not to contain any major surprises as far as markets were concerned. The review looked into the tools and strategies the ECB will call upon to implement monetary policy going forward. In the short term, there are few implications by all reports, mainly because the deposit facility rate was reaffirmed as the main policy rate of the ECB's 3 interest rates, while banks' minimum reserve requirements are to remain at 1%. 

After a lull this week, local events ramp up again next week with an RBA meeting (Tue) and labour market data (Thu) awaiting. With recent data coming in broadly consistent with RBA forecasts, there seems little need for the Board to shift its messaging, reaffirming that it remains attentive to inflation risks while signalling that it is not ruling anything in or out from a policy perspective. Meanwhile, coming off a seasonally weak period either side of the new year, February's labour force survey is anticipated to report a rebound in employment (40k), easing the unemployment rate back to 4% from 4.1%. 

Friday, March 8, 2024

Macro (Re)view (8/3) | Payrolls weaken US dollar

US equities declined and the dollar lost ground this week. Just as markets had begun to ponder a scenario of no Fed rate cuts in 2024 (and potentially a hike), Fed Chair Powell told Congress that the FOMC is not far from having the confidence to lower rates, while back revisions to US employment data indicated the labour market is not as hot as previously thought. The Australian dollar and Sterling saw their strongest weekly gains against the USD this year, while the Japanese yen rose by its most since July amid signs that the BoJ is moving towards hiking rates. The euro also advanced despite the ECB giving strong indications that it will cut rates in June. Next week's highlight events include US CPI (Tue) and retail sales (Thu).  


Fed Chair Powell's Congressional testimony reaffirmed that rate cuts remain on the cards despite an uptick in recent inflation readings and strength in the labour market. Assessments around the latter, however, have shifted somewhat following Friday's employment report. Nonfarm payrolls increased by 275k in February, stronger than the 200k consensus but sizeable downward revisions saw reductions to the employment gains in December (333k to 290k) and January (353k to 229k). The unemployment rate lifted from 3.7% to 3.9% and the broader underemployment rate rose from 7.2% to 7.3%, both touching highs since late 2021/early 2022, as labour force participation remained unchanged (62.5%). Further signs of softening in the labour market were seen in average hourly earnings growth easing from 4.5% to 4.3%yr. 

The Australian economy posted subdued growth of just 0.2% in the December quarter and 1.5% through the year. This confirmed a notable slowing of momentum through the back half of the year (0.5%), as household consumption (0.1%q/q, 0.1%Y/Y) became increasingly constrained by cost-of-living pressures and higher interest rates. Alongside a moderation in business investment and renewed weakness in residential construction, the composition of growth rebalanced further away from private demand to public demand. In light of this, the RBA's assessment of excess demand in the economy is looking harder to sustain. For in-depth analysis of the Q4 National Accounts please see my In Review feature article here. Other key developments from the week are also covered, including a substantial widening in the current account surplus to $11.8bn (see here), with the monthly trade surplus coming in at $11bn in January (see here); while dwelling approvals (-1%) and housing finance (-3.9%) opened 2024 on the back foot. 

The ECB is inching closer to cutting rates but is awaiting more data to confirm that inflation is on track to return to target. Markets are betting on the first rate cut coming in June. With the Governing Council leaving all monetary policy settings unchanged, the focus was on the ECB's messaging as a new set of economic forecasts was published. The new forecasts cut the growth outlook this year to 0.6% from 0.8% and lowered the inflation outlook across the projection horizon, anticipating headline and core inflation to slip below the 2% target in Q3 next year. Given this outlook, a case could have been made to cut rates at this meeting, but President Lagarde said this was not discussed. Instead, the main point coming out of the press conference was that the Governing Council wants to see more data - particularly on wages - to give it confidence that it can start to dial back restrictive monetary policy. President Lagarde said the Governing Council will know "a little more in April" and "a lot more by June", giving soft validation to market pricing. 

In the UK, the Spring Budget capitalised on an outlook for lower inflation and interest rates, using the windfall to increase fiscal support to the economy. The OBR calculates that new measures announced in the budget will increase spending by around £40bn over the next 5 years, delivering stimulus of 0.3% of GDP on average per year. The major announcement was tax relief for households, a 2ppt cut to National Insurance Contributions coming at a cost of £10bn per year. However, this will be partly offset by new taxes, expected to raise £7bn through 2028/29. Following the budget, planned Gilt sales in 2024/25 have been announced at £265bn, this was above expectations (£258bn) but market reaction was limited. 

Thursday, March 7, 2024

Australian housing finance -3.9% in January

The value of Australian housing finance commitments fell by 3.9% in January to $25.1bn. This follows a sizeable fall in December (-4.1%). These declines may be driven by seasonality, abruptly halting an uptrend in commitments through 2023. That said, renewed concerns around housing affordability and a further RBA rate rise in November - increasingly looking to be the last for the cycle - could also be relevant factors.  





Housing finance commitments fell by 7.9% over December-January, retracing to their lowest level ($25.1bn) since August 2023. Heightened volatility across a range of economic data sets around the turn of the year has suggested that there may be some issues with the ABS's seasonal adjustment processes, by extension a potential factor in this series as well. In January, commitments fell to owner-occupiers (-4.6%) and investors (-2.6%), both segments posting back-to-back declines following contractions of 5.6% and 1.6% respectively in December. 


The fall in owner-occupier lending in January was broad based: upgraders -5.2% (on a 2.3% fall in loan volumes), construction-related -2.4% (-4.2%) and first home buyers -6% (-6.9%); alterations went against the trend rising modestly by 0.7%. 


Lending to the investor segment declined by 4.1% over December-January but at $9.2bn was still 18.5% above its level a year ago. The state figures show the fastest growth through the past 12 months has come in Western Australia (63.1%) and South Australia (41.7%).  
 

In the refinancing segment, activity slowed further in January. Total refinancing fell by 5% in the month to $16.1bn, posting its 6th consecutive decline. Refinancing declined by 7.4% for owner-occupiers ($10.3bn) and 0.5% for investors ($5.8bn). The slide over recent months is an unwind from an earlier surge in activity alongside the RBA's tightening cycle. 

Wednesday, March 6, 2024

Australia's trade surplus $11bn in January

Australia's goods trade surplus was moderately wider at $11bn in January from a revised $10.7bn in December, the outcome printing below the $11.5bn consensus forecast. Exports opened 2024 with a 1.6% rise, its 4th month-on-month increase in succession, outpacing a 1.3% lift in import spending. Both exports and imports have fallen by around 5% over the past year.    


The goods trade surplus widened a little further to $11bn in January. This is consistent with the trend over recent months. On a 3-month average basis, the goods surplus reached a recent trough of around $8bn in September-October; subsequently, it has widened to an average of $11.1bn for the 3 months to January. Export income has been on a rising trajectory - underpinning the acceleration in the current account surplus reported earlier this week - as import spending has softened, reflecting weakening domestic demand conditions.   


In January, exports saw a 1.6% rise to $47.5bn, the level down 5.2% on a year ago. The key movements came in non-monetary gold (18.2%) and rural goods (7.6%). Rural goods advanced as the value of meat (17.7%) and grain exports (26.6%) accelerated. Non-rural goods declined overall, down 0.5% as a 1% rise in iron ore exports was offset by falls in coal (-0.7%), LNG (-0.9%) and metals (-6.7%).


Imports ($36.5bn) posted a 1.3% rise following a 4% lift in December. Prior to that, imports were down notably through October (-3.2%) and November (-8.2%). For January, consumption goods increased by 5.2%, driven almost exclusively by imports of new vehicles (17.2%). Capital goods saw a 5.9% rise on the back of telecommunications equipment (30.3%) and industrial transport equipment (13.1%). By contrast, intermediate goods declined 5.1%, dragged lower by declines in fuel imports (-5.6%) and parts for vehicles (-27.6%). 

In review: Australian Q4 GDP: Momentum continues to slow

Momentum in the Australian economy slowed materially in 2023. With the recovery from the pandemic having run its course, household consumption - the largest component of the economy - was left increasingly exposed to cost-of-living pressures and higher interest rates as the year progressed. Real GDP growth was 0.2% in the December quarter, slowing from 2.1% to 1.5% through the year. The slowdown intensified in the back half of the year; GDP increased by 0.5% in the period - the softest half-year outturn excluding the Covid period since 2008 following the global financial crisis.  


Similar trends were seen offshore. Although growth in the US economy remained strong, most other advanced economies slowed sharply in the second half of the year. In China, consumption growth eased with the pandemic recovery winding down. 


In Australia, domestic demand (0.1%q/q, 2.3%Y/Y) has been bolstered by the public sector (0.4%q/q, 4.7%Y/Y). This has helped to offset weakening private demand (0%q/q, 1.3%Y/Y) as household consumption slowed to the point of stalling and dwelling investment contracted; however, business investment was resilient, contributing strongly to output growth. 


The December quarter GDP outcomes were in line with RBA expectations. Notwithstanding this, the RBA's assertion of the economy operating in excess demand looks harder to sustain. Economic growth is now at a subdued pace (and -1%Y/Y in per capita terms); inflation slowed sharply into year-end; and the labour market - while still robust - has eased from cycle tights. 


Declining inflation improved real income dynamics in the quarter, but households are continuing to feel the effects of pressures on their budgets. In 2023, mortgage interest payments and income tax accounted for more than a 21% share of disposable income. 


Some relief is on the way via the upcoming stage 3 tax cuts, while the case for the RBA to ease restrictive monetary policy settings from its 4.35% cash rate will build if the incoming data continues to suggest that momentum in the economy is weak. 
  



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National Accounts — Q4 | Expenditure: GDP (E) 0.4%q/q, 1.6%Y/Y



Household consumption (0.1%q/q, 0.1%Y/Y) — The accumulation of pressures from the higher cost of living and RBA rate hikes effectively brought household consumption to a standstill in the December quarter. Consumption went backwards in categories including new vehicles (-3.6%), hotels and cafes (-2.8%) and clothing and footwear (-2.5%), reflective of a broad-based rotation away from discretionary-related consumption over the past year (-1.6%) to essential goods and services (1.2%).


The news around real incomes saw some welcome developments. Real disposable income lifted by 1.5% in the quarter - its best result since Q3 2021 - turning positive in annual terms (0.3%) for the first time since mid-2022. This came as nominal income increased by 2.3%q/q - underpinned by rising wages growth in a still-robust labour market (1.4%), social assistance payments (5.9%) and interest income (6.7%) - and inflation (on the household consumption deflator) eased to 0.8%q/q. 


As a result, the improvements to real income dynamics supported a rise in the household saving ratio to 3.2%, lifting from a 15-year low in Q3 (1.9%). Although this remains well below pre-pandemic levels of around 5-6%, households still, on aggregate, retain a substantial stock of excess savings accumulated during the Covid period.  


Dwelling investment (-3.8%q/q, -3.1%Y/Y) — Residential construction activity slumped into year-end contracting by 3.8% in Q4 to be down 3.1% through the year. The effects of higher interest rates, weak sentiment and supply and labour constraints - legacies of the pandemic - are all weighing on the sector. Declines in Q4 were sizeable in both new home building (-3.5%) and alterations (4.2%), the latter contracting for the 9th time in the past 10 quarters, unwinding from its stimulus-driven peaks seen during the pandemic. 


Business investment (0.7%q/q, 8.3%Y/Y) — A frontloading of business investment into the first half of the year (6.7%) ahead of the withdrawal of tax incentives led to an inevitable easing of momentum in the second half (1.5%). Overall, business investment lifted sharply through the past year (8.3%), contributing 1ppt to the 1.5% increase in real GDP over the period. In the most recent quarter, business investment lifted 0.7%. The major driver was non-dwelling construction (2.5%q/q) - up a robust 9.3%Y/Y - as machinery and equipment investment saw a pullback (-1.3%q/q).    


Public demand (0.4%q/q, 4.7%Y/Y) — Despite moderating in Q4 (0.4%), public demand was still up by a solid 4.7% through the year. This has delivered a key offset to the economy alongside the slowdown in private demand. In Q4, public expenditure increased by 0.6%, led by assistance payments to households and the staging of the Aboriginal and Torres Strait Islander Voice Referendum held in October. Underlying investment was surprisingly soft in the quarter (-0.2%) but has risen significantly over the past year (13.7%) as progress on the substantial pipeline of public infrastructure projects has ramped up.   


Inventories (-0.3ppt in Q4, -0.9ppt yr) — Subtracted from growth in Q4 (-0.3ppt) and over the past year (-0.9ppt). Inventories declined in the December quarter as earlier disruptions that affected production and transportation in the resources sector cleared, amid strong demand for Australia's bulk commodities offshore. This was moderated by a sizeable increase in public authorities inventories.


Net exports (0.6ppt in Q4, 0.3ppt yr) — Contributed 0.6ppt to GDP in Q4 but added only modestly to growth over the past year (0.3ppt). Export volumes declined by 0.3% in the quarter, rounding out a soft second half in 2023 (-0.5%); goods trade (-2.2%) was weighed by disruptions to resources shipments and the recovery in the services sector (mainly tourism and education) moderated (8.3%). Overall, exports are still 3.2% short of recovering to pre-Covid levels. By contrast, imports remain substantially above pre-Covid levels (+6.2%); however, a sharp decline of 3.4% in Q4 reflects the weakness seen in domestic demand into year-end. Notable contractions came in consumption (-5.4%) and capital goods (-3.4%) as well as in travel services (-9%).    


— — 

National Accounts — Q4 | Incomes: GDP (I) 0.2%q/q, 1.4%Y/Y 


A 2.3% rise in the terms of trade - coming after declines of 7% in Q2 and 2.1% in Q3 - supported Australian national income in the final quarter of the year. This was driven by a 3.1% acceleration in export prices as commodity prices increased, outpacing a 0.8% rise in import prices alongside a weaker Australian dollar. Notwithstanding this, the terms of trade fell by 3.9% through the year to be down almost 12% from its record high in mid-2022. 


The increase in the terms of trade underpinned rising nominal GDP, up 1.4%q/q to 4.4%Y/Y. A year earlier, nominal GDP had expanded at 12.1%Y/Y pace, with declines in commodity prices driving the slowdown.  


Higher commodity prices flowed through to mining company profits, reflected in non-financial corporations operating surplus rising by 2.9%, partially rebounding from material declines in Q2 (-7.5%) and Q3 (-3.9%). Financial corporations operating surplus posted a 1.6%q/q rise to be up 6.3% through the year, with rising interest rates boosting net interest margins for banks. By contrast, margin pressures are weighing on small company and farming profits, with gross mixed income falling 4.1% q/q and 8.6%Y/Y. 


Growth in wage incomes moderated to 1.4% in Q4 (8.4%Y/Y) after receiving a large boost in the previous quarter (2.8%) from increases to the minmium wage and award rates. In Q4, wages were supported by mandated increases that flowed through to workers in the aged care sector and by hiring associated with the Voice Referendum. 


Due to hours worked in the economy falling over the past couple of quarters (-0.7% in Q3 and -0.3% in Q4), growth in hourly earnings (non-farm wages) has picked up to be running at a 6%Y/Y pace. But this has not translated to an associated rise in unit labour costs; this is because measured productivity outcomes increased in Q3 (1.5%) and Q4 (0.5%), the result of economic growth rising as hours worked declined.  


— — 

National Accounts — Q4 | Production: GDP (P) 0.1%q/q, 1.6%Y/Y

The GDP production estimate was 0.1% in the December quarter, easing from 1.9% to 1.6% at an annual pace. Gross Value Added to the economy rose at the same pace for goods-related (0.3%) as services-based industries (0.3%) in the quarter. Public administration (1%) was a notable contributor to growth, driven by activity associated with the Voice Referendum. 


In the goods-related sector, goods production (0.5%) more than offset weakness in goods distribution (-0.2%). Goods production saw a rise on the back of increased output in the mining industry (1%) and in utilities (0.9%) as warm weather increased demand for electricity. The fall in goods distribution reflected declines from wholesalers (-0.6%) - associated with a reduction in grain exports - and transport (-0.3%) as demand for postal services eased and imports weakened. 


Turning to the services sectors, household services stalled (0%) as consumption rotated away from discretionary-related areas to essential services. Accordingly, weakening demand led to declines in accommodation and food services (-3.2%) and in arts and recreation (-0.8%). This contrasts with gains across health (0.5%) and education services (0.4%). Business services advanced 0.5% overall in Q4. Professional services (1.2%) led the way on increased demand for engineering services.

Tuesday, March 5, 2024

Australian GDP 0.2% in Q4

The December quarter National Accounts confirmed that momentum in the Australian economy slowed materially in 2023. Real GDP printed at 0.2% in Q4 (vs 0.2% expected, 0.3% prior) as year-ended growth eased from 2.1% to 1.5%. With the recovery from the pandemic having run its course, household consumption in 2023 became increasingly exposed to the headwinds of higher interest rates and cost-of-living pressures. As this played out, GDP growth slowed from 1% in the first half of the year to 0.5% through the back half, its softest half-year outturn outside of the Covid period since 2008 following the financial crisis. Alongside this, inflation slowed notably into year-end and labour market tightness also eased. The RBA's assessment of the economy operating in excess demand was already contentious and looks even harder to sustain now. 


Over the past year, public demand has been the major driver of growth - as governments have boosted cost-of-living support and progress on infrastructure works have ramped up - helping to offset slowing private demand. This was also the case in Q4: domestic demand (0.1%) was held up by a 0.4% lift in public demand as private demand stalled (0%). Net exports added to growth (0.6ppt) while inventories weighed (-0.3ppt).  

Private demand remained supported by business investment (0.7%q/q), which has risen strongly over the year (8.3%) on a delayed rebound from the pandemic, but has been weighed by weakness in household consumption (0.1%q/q, 0.1%Y/Y) and dwelling investment (-3.8%q/q, 3.1%Y/Y).


Household consumption has effectively stalled. Over the past year, pressures on finances through higher mortgage payments, increased income tax alongside rising wages and the rise in the cost of living prompted households to wind back discretionary consumption (-1.6%) and prioritise essentials (1.2%). 


There were tentative signs, however, that suggest the outlook for consumption could improve. With inflation slowing sharply in Q4 and following an earlier acceleration in wages growth, real disposable income growth turned positive (albeit very slightly) in annual terms (0.3%) for the first time since mid-2022. Over this period of negative real income growth, savings accumulated during the pandemic have been drawn down to support consumption and this could continue into 2024. Also helping is that the government's Stage 3 tax cuts will come into effect from the middle of the year, while weakness in the data has firmed expectations for 1-2 RBA rate cuts this year. Furthermore, the improved dynamics around real incomes halted the slide in the household saving ratio; however, at 3.2%, it remains well short of returning to pre-Covid levels (5-6%). A faster or more substantial weakening in the labour market is the obvious risk to this optimism.   


More to come. 

Monday, March 4, 2024

Australia Current Account $11.8bn in Q4; net exports +0.6ppt

Australia's current account surplus rebounded to elevated levels in the December quarter ($11.8bn) as export income advanced and import spending declined. The ABS reported that net exports will contribute 0.6ppt to GDP growth in Q4 - an above consensus outcome - although this belies weakness in underlying trade volumes. 



After narrowing materially through the middle quarters of 2023, the current account surplus rebounded to $11.8bn in the December quarter (around 1.8% of GDP), its highest since Q2 2022. The previous quarter's outcome for the current account was revised to a surplus of $1.3bn from a broadly balanced position of -$0.2bn reported initially. This represents a $10.5bn increase in the current account surplus since Q3, with the key movements being a wider trade surplus ($8.2bn) and a narrower income deficit ($1.9bn). 
 

The rebound in the current account surplus was driven by the terms of trade - the ratio of export prices to import prices - rising by 2.2%, a net income boost for Australia. Export prices rose by 3.1%, largely on the back of a 9.4% surge in iron ore prices, while import prices lifted by 0.8%. 


In price-adjusted or volume terms, exports were soft falling 0.3% in the quarter; however, there was a much larger 3.4% fall in imports. The ABS reports that this combination of outcomes will see the trade component adding 0.6ppt to GDP growth in Q4, a reversal of its negative contribution to output in Q3. 


For exports, its decline in Q4 was driven by goods (-0.4%), reflecting weaker demand for rural goods (-2.3%) and non-monetary gold (-8.8%). Services exports lifted by 0.5%q/q, indicating the rebound in the domestic tourism and education sectors continued through Q4. Over the past year, all the growth in exports has come from the services sector. 


The 3.4% contraction in import volumes reflected weakness in both goods (-2.8%) and services (-5.3%). There were falls in consumption (consumer) goods (-5.4%) and capital goods (associated with business investment) (-3.4%); while quarterly movements can be volatile, growth in year-ended terms is negative for consumption goods (-2.9%) and modest for capital goods (1.6%). These are signs of softness in domestic demand conditions. The fall in services volumes follows a couple of very strong quarters when many Australians were holidaying overseas. However, services imports remain considerably below pre-Covid levels (-24.7%), whereas services exports have recovered above that baseline (3.2%).