Australia's National Accounts for the March quarter are due to be published by the ABS at 11:30am (AEST) this morning. Expectations are that the Australian economy expanded by around 0.3% in the quarter, with year-ended growth easing to around 2.5%.
The Australian economy slowed over the course of 2022 as the rebound from the pandemic wound down and economic headwinds intensified. Declines in real incomes, rising interest rates, and weak sentiment continued to weigh on growth in the first quarter of 2023.
After peaking late last year, inflation eased in Q1 reflecting falls in fuel prices and goods-related disinflation; however, the RBA's tightening cycle continued with 25bps rate hikes coming through at the February and March meetings.
Higher interest rates and cost-of-living pressures led to the momentum in household spending slowing further. Retail sales volumes contracted for the second quarter in succession, driven mainly by a pullback in demand for household goods.
Consumption, however, continued to be bolstered by accumulated household savings, rapid post-pandemic population growth and the strong labour market. Employment re-accelerated in Q1 to increase by around 120k, holding the unemployment rate to half-century lows at around 3.5%. Growth in the working-age population was increasing at its fastest pace in around a decade, with labour force participation around record highs.
The inflow of overseas arrivals led to further growth in services exports, most notably in the tourism and education sectors. This was also having an effect on the housing market; very low capital city vacancy rates were putting upward pressure on rents, and the downturn in housing prices was starting to give way to tight supply.
Offshore, growth slowed further in Q1, but advanced economies had generally remained resilient to high inflation and rising interest rates. China's reopening following the earlier-than-anticipated reversal of its Covid measures had been a key development that supported global growth in Q1. Inflation continued to decline in many countries, reducing the drag on real incomes, while strong labour markets were also contributing to the resilience in household consumption. Late in the quarter, a key risk to the global economic outlook emerged following a series of US regional bank failures.
As it stands | National Accounts — GDP
Growth in the Australian economy softened over the second half of 2022. Real GDP growth in the December quarter slowed to 0.5% and 2.7% through the year. Aside from lockdown-affected quarters, this was the slowest quarterly growth rate in 3 years.
Domestic demand stalled into year-end amid a downshift in the momentum of household spending and weakness in investment. Household consumption softened to 0.3% in the quarter reflecting headwinds from declines in real incomes and rising interest rates. The boost to consumption from the pandemic rebound appeared to have wound down, though the rotation in spending patterns associated with the reopening continued as services advanced (1.2%) and goods declined (-1%).
Business investment softened (-0.8%) after solid growth through the middle of the year. Meanwhile, home building activity had picked up as supply constraints eased, though the unwind in home renovations that surged during the pandemic continued.
Net exports contributed strongly to Q4 growth (1.1ppts), though this was mainly driven by a decline in imports, consistent with slowing domestic demand conditions. The recovery in inbound tourism and education on reopened borders continued to support exports. Inventories were a headwind to Q4 GDP (-0.5ppt) on the back of soft retail demand, partly offsetting the boost from net exports.
Key dynamics in Q1 | National Accounts — GDP
Household consumption — Soft growth is expected as headwinds to consumption from pressures on household budgets and weak sentiment impact. Retail sales volumes contracted in the quarter but services consumption likely remained more resilient. Savings accumulated over the pandemic, the strong labour market and population growth are factors supporting consumption.
Dwelling investment — Headwinds continue to impact the home building sector as activity contracted in Q1. A fall in new home building was moderated by a lift in alteration work.
Business investment — Equipment investment lifted strongly in the quarter. Eased capacity constraints supported a rebound in non-residential construction activity.
Public demand — Coming off a broadly flat quarter (0.2%), public demand rose modestly in Q1 (0.6%), led by progress in rolling out infrastructure projects across Australia.
Inventories — A rebound in imports supported a build on inventories, expected to add 0.3ppt to quarterly GDP.
Net exports — Will deduct 0.2ppt from activity in Q1. Imports rebounded on eased supply chain pressures, outpacing rising exports which remain supported by services as the sector continues to recover following the reopening of the borders.