Australian economic growth slowed from 0.9% to 0.3% in the March quarter, just short of the 0.4% consensus forecast. Headwinds to the economy from the Middle East conflict and RBA rate hikes are barely reflected in today's figures, with the slowdown being driven by a large drag from net exports (-0.8ppt). That was the byproduct of rising imports (2.1%) associated with capex boom in data centres in tech- and AI-related industries, seeing business investment (5.7%) surge at its fastest pace since 2012.
The March quarter National Accounts largely reflect conditions prior to the fuel price shock and before the RBA's tightening cycle gathered speed. GDP growth was 0.3% in the quarter, well down from the December quarter (0.9%) but enough to hold annual growth at 2.5%.
Amid that backdrop, domestic demand was robust, lifting by 1% in the quarter and up 3.5% through the year, its fastest pace in 3 years. That was achieved despite growth in public demand (0.1%q/q) cooling over the past year (2.4%). Private demand (1.3%q/q) took up the running (4%), driven by a recovery in household consumption (2.5%) and surging business investment (10.4%).
In the latest quarter, business investment (5.7%) was the major driver of growth. Servers and processors needed for the fit-out of data centre saw equipment and machinery investment accelerate by nearly 15% - its fastest increase since 2002.
Household consumption (0.5%) was a little stronger than expected, though that was partly due to electricity rebates ending. That saw household spending on utilities increase sharply (11.7%), while state government expenditure fell (-0.8%). More broadly, there are reasons to be cautious around the consumer. Real incomes were already going backwards slightly (-0.2%) before fuel prices surged and the RBA delivered two further rate hikes in April and May. The saving rate was also falling, down from 7% to 6.2% in the quarter.
The 0.8ppt drag from net exports was its largest hit to quarterly growth in two years. As highlighted, sharp growth in imports (2.1%q/q, 7.8%Y/Y), which subtracts from GDP, has been driven the tech- and AI-related capex boom. Meanwhile, exports fell in the quarter (-1.1%) as cyclones hampered resources exports to offshore markets.
More to come.
