Australia’s economy grows 2.3% in the first quarter

  • Economists polled by Reuters had forecast a 2.4% expansion, compared with a 2.7% increase in the fourth quarter of 2022.
  • On a quarter-to-quarter basis, GDP grew by 0.2%, compared with the 0.3% expected in a Reuters poll.

View of the Yarra River flowing through downtown Melbourne, Australia.

Loop images | Universal Images Group | Getty Images

Australia’s first-quarter gross domestic product rose 2.3% year-on-year, just slightly below analysts’ expectations.

Economists polled by Reuters had forecast an increase of 2.4%, compared with 2.7% growth in the fourth quarter of 2022. On a quarter-on-quarter basis, GDP grew 0.2%, compared with 0.3% expected in The Reuters poll.

Katherine Keenan, head of national accounts at Australia’s Bureau of Statistics, said: “This is the sixth straight increase in quarterly GDP, but the slowest growth since the Covid-19 Delta shutdown in the September quarter of 2021.”

“Private and government gross fixed capital formation were the main drivers of GDP growth this quarter,” Keenan said.

The GDP readings are key to the Reserve Bank of Australia’s monetary policy decision-making process. Just on Tuesday, the RBA surprised markets and raised its benchmark key rate by 25 basis points to 4.1%, an 11-year high.

Early Wednesday morning, Reserve Bank of Australia Governor Philip Lowe delivered a speech at the Morgan Stanley Australia summit, reiterating his stance that the central bank will attempt to navigate a “narrow path” in the country’s monetary policy.

In this “narrow path” envisioned by Lowe, Australia’s inflation returns to its target range of 2% to 3%, the economy continues to grow, and labor market gains are preserved.

“It is still possible to navigate this path, and our ambition is to do so. But it is a narrow path and probably a bumpy one, with risk on both sides,” Lowe said.

Lowe clarified that the intention to preserve the improvement in the labor market “does not mean that [RBA] will tolerate higher inflation persisting.”

As such, the decision to raise rates again was taken on Tuesday “to provide greater confidence that inflation will return to target within a reasonable timeframe,” he said.

Lowe listed the economic data points the RBA will look at to make its progress, including the global economy, household spending and growth in unit labor costs.

Abhijit Surya, who is Australia and New Zealand economist at Capital Economics, believes that while GDP has slowed and is expected to slow further, productivity growth remains “dismal”.

Surya wrote that GDP per hour worked fell by 0.3% quarter-on-quarter in the period, resulting in a 4.6% annual drop in productivity – the largest on record.

He also adds that labor market data suggest that productivity is most likely to have weakened further this quarter, which will support growth in unit labor costs and keep services inflation stubbornly high.

Surya currently has a top estimate of 4.35% for the RBA’s benchmark rate, but in light of the GDP readings and Rowe’s speech, he highlights that “there is a real risk that the RBA could raise rates even higher.”

Source link

Back to top button

mahjong slot