Economist expects Q2 to remain soft, but predicts a pickup in the second half of the year
Australia’s gross domestic product (GDP) rose by 0.1% in the March quarter of 2024 – the slowest quarterly growth in almost two years.
This GDP growth, according to NAB economist Alan Oster (pictured left), was in line with expectations but slightly weaker than the consensus and the Reserve Bank of Australia’s (RBA) forecast.
The rise was supported by household consumption and public demand, while business investment had a minor negative impact. Volatility in trade and net exports largely offset each other, and dwelling investment remained flat.
Oster said that aggregate GDP growth continued to soften both annually and quarterly. However, household consumption saw significant upward revisions, showing more resilience in spending. The household saving rate, after revisions, has been flat for about three quarters at around 1%. Easing pressures on household disposable incomes due to slowing inflation were becoming more evident.
Broader price and wage measures indicated some moderation in price pressures, although they remained elevated. Productivity and unit labour costs suggested some easing in consumer price pressures, but these measures can be volatile on a quarterly basis.
Here's what happened in the Australian economy during the March quarter 2024. Read more here https://t.co/OuiNdKA5Lw pic.twitter.com/hY8kLlwcgH
— Australian Bureau of Statistics (@ABSStats) June 5, 2024
“The latest GDP data doesn’t change our view of the economy,” Oster said. “We expect Q2 to remain soft overall, but see a pickup in H2 driven by easing pressures on households and a rebound in consumption growth. That sees below trend growth of around 1.5% this year (or possibly lower), but closer to trend growth in 2025.
The bank’s chief economist also believes the RBA will likely hold off on rate hikes in the near term, with a potential rate cut later in the year.
“In our view, the continued pattern of subdued growth will give the RBA comfort that the output gap is closing and inflationary pressures will continue to ease – despite the recent upside surprises on the CPI,” Oster said.
“That sees the RBA on hold rather than a near-term hike, with a first cut likely to come late in the year – though we acknowledge the risk this may be slightly later. The path of inflation moderation is set to remain gradual and uneven, while the evolution of consumption behaviour and the labour market remain key factors.
Meanwhile, with the construction sector seen as the weakest link in the economy during the March 2024 quarter, Master Builders Australia chief executive Denita Wawn (pictured right) emphasised the strong correlation between a robust construction industry and overall economic health.
“We know for every dollar invested in the industry sees three dollars returned to the broader economy,” she said. “In 2023, construction was one of the main drivers of economic growth, but the sobering figures reflect a continuous decline in building approvals across all sectors of the industry.”
Wawn called for federal, state, and territory governments to expedite planning reforms, finalise the migration review, introduce workforce growth incentives, and establish a strong industry regulator. She also supported the new policy encouraging investment in build-to-rent projects, which could help alleviate rental inflation.
“Master Builders is still working through the details of the legislation but supports the principle of diversifying the housing supply mix in our economy,” she said.
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