The ABS released several key reports this morning, ahead of tomorrow's March quarter GDP figures in the National Accounts. There were no major surprises; however, the details for inventories, trade and public demand were on the weaker side of expectations. That points to some downside risks to market forecasts for quarterly GDP growth of around 0.5%.
Starting with the Business Indicators report, private sector inventories increased by 0.5% quarter-on-quarter but fell slightly through the year (-0.3%). Based on that result, estimates suggest that private non-farm inventories will add 0.2ppt to quarterly growth. However, public sector inventories (reported in a separate release) weighed on GDP by 0.3ppt, indicating that total inventories were a small drag (-0.1ppt).
Business profits fell overall by 1.3% in the quarter (and by 1.5% on an inventory adjusted basis). That, however, was heavily impacted by the mining sector (-9.1%), after several cyclones in Western Australia disrupted operations. Profits excluding mining were up 3.6% for the quarter and 6.1% through the year.
That reflected a backdrop of resilient demand - sales volumes ex-mining rose by 0.7% in the quarter (2.6%Y/Y) - but at this stage the fuel price shock and RBA rate hikes had barely hit the sides of households. Businesses also face margin compression from these same headwinds.
Turning to international trade, net exports are expected to deduct 0.8ppt from quarterly growth, its largest hit to GDP in two years and larger than the 0.5ppt drag expected. Import volumes rose 2.1% in the quarter (deducting from GDP), while exports slipped 1.1% (also weighing on GDP) to post their weakest quarter since the end of 2023. Solid growth in exports through much of last year was derailed by weakness in resources exports (-2.2%), again noting the impact of cyclones that hit Western Australia.
Imports lifted on the back of a 6.3% acceleration in capital goods, which follows an even larger rise of 8.7% two quarters ago. That has been driven by the tech and AI-related investment boom in data centres. The critical infrastructure that powers data centres has seen ADP equipment (yellow line in chart below) more than double over the past year (136%).
Meanwhile, the current account has continued to deteriorate - not necessarily a concern given the surging investment backdrop discussed above, while the energy shock should boost Australia's terms of trade moving forward. But this also comes alongside an outlook for fiscal deficits well into the future in the recent federal budget. The current account deficit increased from $23bn to $27.1bn in the March decade, around 3.7% of GDP to be a decade-high wides.
The underlying trade balance recorded its first deficit since the final quarter of 2017, albeit a razor-thin one at $2.4bn. Import spending rose 0.8% in the quarter, while export revenue fell by 1.2%.
Lastly, public demand was broadly neutral from a growth perspective in the March quarter. Government spending was 0.2% down on the previous quarter, dragged down by state and local governments (-0.8%). However, new investment (excluding asset transfers) rose by 1.1% in the quarter.
Source: ABS
