Australia’s economy grew by an underwhelming 0.4 per cent during the March quarter as household spending weakened and the property construction downturn rolled on.
The seasonally adjusted GDP growth for the three months to March improved on a disappointing December quarter, but economists had expected a slightly bigger bounce with consensus predictions centring on a 0.5 per cent lift.
A new record low cash rate of 1.25 per cent was set on Tuesday after alarm bells were rung by the previous quarter’s GDP slowing to just 0.2 per cent growth.
Meanwhile, the 12-month growth figure of 1.8 per cent is the slowest pace since the 2007-08 financial crisis – despite Wednesday’s update meeting market expectations – and well beneath the Australian Bureau of Statistics’ long term average of 3.5 per cent.
BIS Oxford economist Sarah Hunter agreed the March figures represented a surprisingly weak rebound.
“Consumers continue to be battered by weak income growth, and this was added to by the drag from sharply falling house prices in the first three months of this year, ” Dr Hunter said.
“Overall, the data confirm that the economy started 2019 very softly.”
Government spending was the main contributor to GDP growth during the March quarter, adding 0.2 percentage points according to Wednesday’s seasonally adjusted ABS data.
ABS chief economist Bruce Hockman said this reflected ongoing delivery of services in disability, health and aged care.
Household spending slowed and contributed a modest 0.1 per cent to growth reflecting reduced spending on discretionary goods such as furnishing and household equipment, recreation and culture and hotels, cafes and restaurants.
Dwelling investment continued to detract this quarter.
The ABS said the slowing housing market has resulted in significant falls in ownership transfer costs, particularly stamp duty.
The Australian dollar fluctuated in the 15 minutes after the announcement, falling to 69.88 US cents then jumping to 70.02 US cents.
The dollar was buying 69.99 US cents at 1445 AEST.
JP Morgan senior economist Ben K Jarman said Wednesday’s numbers raised yet more downside risks to the RBA’s growth forecasts, which have already been cut back significantly over the last few statements on monetary policy.
“This likelihood has probably been a significant factor in the governor’s new-found willingness for monetary policy to play a role in stabilising activity,” Mr Jarman said.
“With growth in domestic demand having slowed to such an extent, significant easing is required (including on the fiscal policy front) to push unemployment meaningfully below 5.0 per cent and deliver the inflation target.”
KPMG chief economist Dr Brendan Rynne said the government may have missed an opportunity to cut rates more aggressively “and use its limited monetary firepower in a big bang rather than spreading it over a few months and dissipating the impact.”
“It also puts an onus on the re-elected government to bring forward fiscal stimulus to the economy, by getting new targeted infrastructure projects up and running and ensuring the proposed tax breaks are brought into law soon – as monetary policy won’t do all the heavy lifting,” Dr Rynne said.