monetary and fiscal policy measures yet to gain meaningful traction. Circumstances have since changed materially as Q1 shapes up as a weak quarter in response to the summer bushfires and the coronavirus outbreak. Yesterday, the RBA responded by lowering the cash rate by 25 basis points to 0.5% and also indicated a willingness to ease further, alongside support from the Federal government, likely to be targeted at the sectors of the economy most impacted.
The overall dynamic remains where private demand is weak, with the economy being bolstered by support from public spending and net exports.
In Q4, household consumption growth lifted by 0.4% (1.2%yr), with discretionary spending remaining weak despite recent stimulus. Residential construction activity continued to fall (-3.4%qtr, -9.7%yr) as the downturn in the cycle intensified further. However, ownership transfer costs (associated with real estate transactions) picked up sharply in Q4 (12.3%qtr) and added 0.2ppt to overall activity. Business investment contracted further (-0.8%qtr, -1.2%yr) as firms scale back capex plans due to weak confidence and an uncertain global backdrop. It is a contrasting picture, though, with mining investment turning up after 6 consecutive years of decline (5.0%qtr, 3.2%yr) as non-mining investment weakens (-3.6%qtr, -2.7%yr). Public demand was the leading contributor to activity, centred on spending associated with health-related initiatives. Inventories added 0.2ppt to growth in Q4, as expected. Net exports contributed 0.1ppt to activity in the quarter and were a key support over the past year (1.1ppts) but face significant headwinds in Q1.
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