Australia's Q1 GDP likely to disappoint - ANZ

Felicity Emmett, a senior economist at ANZ, is expecting another disappointing advance in Australia’s GDP of 0.4% q/q in Q1, which would see annual growth decline to 1.7%, - its slowest pace since 2009 in the midst of the global financial crisis.

• “GDP growth, at +0.4% q/q and +1.7% y/y, looks to be a little lower than the RBA expected at the time of its May Statement on Monetary Policy, with the Bank’s June forecast of +1.7% y/y requiring growth of 0.6%-0.7% q/q on average in Q1 and Q2.
• For the RBA, the surprise weakness looks to have come from business investment which partial data suggest was soft again in Q1.
• In Wednesday’s report, the focus will once again be on the household indicators – consumption and income. Weak retail sales volumes (-0.1%) point to relatively modest growth in consumer spending. While retail spending accounts for only around 30% of consumption, falling house prices and ongoing soft income growth will have weighed on consumer spending in the quarter. We will also be watching the GDP measure of average wages. Preliminary data suggest this is likely to continue to show only fairly modest growth.
• The Q1 GDP data is already quite dated. Since March, we’ve had the announcement of large personal income tax cuts, a surprise election outcome, the prospect of imminent interest rate cuts and an easing in borrowing constraints. Conversely, we’ve also had a deterioration in the international outlook and a fall in domestic business conditions and confidence. Together, these factors raise the uncertainty around the outlook.”