For the second consecutive quarter, Australia has recorded annual GDP growth of 3% or better. The economy grew by 1.1% over the March quarter which was higher than the median forecast rate of 0.8%. The Australian economy grew by 3.1% on a year-on-year basis, again higher than the 2.8% expected by economists.
All of the increase was due to the export sector. The net exports component of GDP accounted for the entire 1.1%, with other growth components balancing off against each other. Exports grew by 4.4% while imports declined by 0.8% over the quarter. Iron ore and coal volumes rebounded after a weak December, while LNG volumes continued to ramp up as projects move towards capacity.
The currency market reacted to the figures by sending the AUD up 0.5 cents higher against the USD while the bond market’s reaction was more muted. 10 year bond rates rose 2bps before ending the day 1bp higher.
Here’s what the economists said:
Felicity Emmett, ANZ
Inflation is the main game for the RBA at the moment, and today’s report shows ongoing soft price pressures in the economy.
Chris Caton, BT Financial Group
Although the “cockroach” theory suggests that rate cuts are rarely solitary, the solid growth shown today, along with the building approvals data yesterday, and the continued firmness of house prices may cause the RBA to wait for more evidence before cutting again. If it happens, it is now far more likely to be August rather than June.
Gareth Aird, Commonwealth Bank
Nominal GDP, which is the broadest measure of income in the economy, and is effectively the tax base, grew by less than real GDP….we expect further monetary policy easing and have pencilled in two more rate cuts that would take the cash rate to just 1.25%.
Paul Bloxham, HSBC
Our view is that the RBA will probably cut its cash rate by a further 25bp to 1.50% in August, following the Q2 CPI print and then hold steady at 1.50% in subsequent quarters.
NAB Group Economics
The GDP deflator – the broadest measure of inflation – recorded a decline of 0.6% in the quarter, while the consumption deflator fell 0.1%. The RBA is likely to look through the strong Q1 GDP result given it was largely due to a lift in exports that is not expected to be sustained in the medium term. At this stage, NAB expects the RBA to remain on hold for the remainder of 2016, though we do acknowledge a further rate cut remains a possibility if inflation continues to surprise to the low side.
Scott Haslem, UBS
The weakness in the nominal economy, including profits & wages, remains the key caution, albeit the recent steadier commodity price environment may be flagging that this drag may soon ease. Today’s GDP data adds to the upside risk already in our 2016 year-average GDP forecast of 2.5%, and challenges those looking for the RBA to cut the cash rate to 1.0%
Westpac Economics
“On prices, the National Accounts did not provide any new information but rather confirmed the disinflationary picture evident in the Q1 CPI report…We continue to expect the RBA to respond to current inflation weakness with a follow-up rate cut in August.”