The Australian economy kicked off the year with stronger than expected growth, but wages growth and consumer spending remains weak, economists say.
The economy expanded 1.0 per cent in the three months to March, taking the annual rate of growth to 3.1 per cent, its strongest level in almost two years.
That was slightly ahead of market forecasts of quarterly growth of 0.9 per cent and an annual lift of 2.8 per cent.
A strong rise in exports, in particular those for coal, iron ore and liquefied natural gas, accounted for half the increase in gross domestic product (GDP) in the quarter, figures from the Australian Bureau of Statistics show.
The economy was also supported by strong government spending on transport and infrastructure, and improvement in housing investment.
CommSec senior economist Ryan Felsman said March quarter’s economic growth, the equal best rate recorded in six years, took Australia’s economic expansion well into its 27th year.
“The Aussie economy is in rude health,” he said.
“We share the Reserve Bank’s view that growth will be stronger this year than last year.”
Despite the strong headline figures, consumer spending remained weak, rising 0.3 per cent in the March quarter, with much of that going on insurance, energy and fuel bills, while spending at restaurants and on alcohol slipped by about two per cent.
BIS Oxford Economics head of macro-economics Sarah Hunter said weak spending remains a weight on the economy.
“With jobs growth slowing sharply, wage rises still tracking inflation (resulting in no real wage gains for the average worker), and house price falls reducing households’ net worth, we expect spending momentum to remain subdued through the rest of this year,” Ms Hunter said.
JP Morgan economist Tom Kennedy said longer-run growth prospects remain challenged and less upbeat because household consumption is hamstrung by benign wages growth and a low saving rate.
The GDP data showed total income paid to workers grew by just 1.2 per cent in the March quarter.
Commonwealth Bank senior economist Gareth Aird said the stronger-than-expected GDP figures were unlikely to alter the Reserve Bank’s outlook for monetary policy in the near term.
“But it adds weight to the RBA’s view that the next move in rates is expected to be up rather than down,” he said.
Federal Treasurer Scott Morrison said Australia’s growth was now above the OECD average and better than all the G7 nations.
“Australia has climbed back to the top of the leaderboard,” he said.
The Australian dollar was boosted by the GDP figures, jumping by almost one third of a US cent to a high of 76.65 US cents.