Australia: Economy grew by 0.3% in a weather disrupted Q1 - Westpac

Andrew Hanlan, Research Analyst at Westpac, explains that the Australian economy grew by 0.3% in a weather disrupted Q1 while the annual growth slowed to 1.7%..

Key Quotes

“Weather disruptions, including storms and flooding, materially impacted activity in the opening quarter of 2017.”

“Conditions will rebound in the coming months as operations return to normal.”

“Beyond a near-term rebound, conditions are likely to crest at a high level and then moderate heading into 2018 as the cycle turns down.”

“More fundamentally concerning is consumer spending softness at a time of trend weakness in wage incomes and high household debt levels.”

“Employment growth has improved in recent months but wages growth is likely to remain weak for some time given slack in the labour market.”

“There are some positives.

• The global backdrop is more favourable and commodity prices rebounded over the past year, providing a material boost to national income.
• Although, the income boost – which is likely to be temporary - is not flowing through to the household sector
• Business investment advanced in Q4 and Q1, the first back-to-back gains since 2012. Notably, the mining investment downturn is nearing an end.
• Also, business confidence has improved, mirroring the global trend.
• Public demand is expanding at an above trend pace, supported by an upswing in public investment.
• The relatively low dollar is a plus for the trade exposed sectors, notably service exports.”

“Surprises

• There were fewer than usual surprises in these accounts relative to final expectations.
• The expenditure measure of GDP was weak, at 0.1%, broadly in line with our prior of a flat figure. An upside was Ownership Transfer Costs (real estate turnover) +5.6% vs f/c 1.0%.
• GDP income was a little stronger than the expenditure measure, at 0.2%qtr, while GDP production printed at 0.5%qtr. We had expected GDP(I) to be firmer than this and for GDP(P) to be a little softer.
• Consumer spending grew by 0.5% as we anticipated, with annual growth a sub-par 2.3%.
• Wage incomes while weak over the year, +1.6%, performed better in Q1 than anticipated, +1.0%qtr.
• The household savings rate moved lower, as to be expected, from 5.1% to 4.7%, helping to fund consumer spending.”