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A sneak preview of the national accounts
It's that time of the quarter again, where we take stock of the Australian economy and all its moving parts. Next week will see the ABS release Australia’s national accounts data for the March quarter. As always, Australia is late to the party, with most major economies having already released their Q1 GDP data. Consequently, this will be one of the last major releases of pre-Liberation day data.
So, what can you expect next week? We are anticipating the economy to have lost a little momentum over the first quarter of the year. The final quarter of 2024 was notable, in that real GDP growth picked up to 0.6%, its highest rate of quarterly growth in two years. Consumers were happy to snap up promotional Black Friday sales and government spending was doing a good job of making up for a flagging private sector. However, this was never a sustainable way to drive growth and we have said for some time now that the economy's recovery was going to be bumpy.
Recent data highlight the challenges to growth in the March quarter. The household spending indicator, a measure which covers around two-thirds of household consumption, was flat over the quarter. The significant surge in cost-of-living pressures is having a lingering impact on consumer behaviour, with households still very sensitive to price rises. Adding to the headwinds to consumption was ex-tropical Cyclone Alfred, which saw much of South-East Queensland and Northern New South Wales come to a temporary standstill in early March.
The soft household spending data will flow through to weak consumption growth in the national accounts. However, the statistical quirk which suppressed household consumption in recent quarters, as the government 'consumed' electricity for households via subsidies, will unwind over the March quarter. This will see household consumption record modest growth over the quarter.
Investment data has also been weak. Construction work done for the March quarter, like the household spending indicator, was flat. However, the headline numbers mask the dichotomy between public and private spending. After a string of solid outturns, public construction work done pulled back sharply in the March quarter, down nearly 4%. In contrast, momentum in private sector construction work done improved.
Helping to drive the uplift was a pickup in dwelling investment. With the housing market in a state of considerable undersupply and construction cost pressures easing, the push to build more housing is slowly gaining traction. Private sector spending needed to take over from public sector spending at some point and the pickup in private construction work is encouraging.
The external sector of the economy is expected to have added to growth over the March quarter. Goods exports were up solidly over the quarter, although are somewhat distorted by exports of gold. The ABS reported that the value of non-monetary gold exports was more than 40% higher over the first quarter of the year. Even pre-Liberation day, the rhetoric coming out of the Trump administration was driving up demand for the safe-haven asset.
Putting everything together, we expect March quarter real GDP growth in the realm of 0.4%. While this is a step down from growth in the December quarter, it is certainly stronger than a year ago and doesn't change our expectation that the economy is still on a recovery path: households are primed to boost their spending, after several years of restraint; the RBA has already cut the cash rate twice this year and is set to deliver further relief over the second half of the year; inflation is no longer weighing on real wages; and the labour market is healthy. The extent of the Federal Government's recent election win will allow for a more efficient passage of campaign promises, ensuring that government spending will put a floor under the economy.
The key caveat of course, is the global environment and its impact on businesses. The current state of heightened uncertainty, perfectly characterised by this week's back and forth on the legality of Trump's tariffs, makes putting in place investment plans difficult. This was evident in this week’s capex spending intentions data, which indicated a hesitancy from Australian businesses to lock in higher investment over the coming year. With private business investment being one of the drivers of an ongoing improvement in real GDP growth in our forecast, this is an area we will be carefully monitoring going forward.