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A fall in exports curbed growth in the March quarter, according to national accounts data released this morning by the Australian Bureau of Statistics, but not enough to send growth into negative territory, as some economists had forecast.

The 0.3% growth figure, seasonally adjusted, is around the middle range of forecasts, and brings growth to 1.7% for the year to March — on track for meeting the government’s 1.75% growth forecast for the 2016-17 year in the May budget. The big September quarter 0.5% contraction was revised back to 0.4%.

The result supports the Reserve Bank’s decision to not change interest rates on Tuesday and its forecast that growth had slowed and would take some time in recovering. “Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures. Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent,” Reserve Bank governor Phil Lowe said in his statement yesterday after the central bank’s June board meeting

The growth data will confound many economists who had the economy contracting in the quarter and they and others will focus on the 0.4% contribution from inventories (business stocks) in the quarter, which reflected a build-up in iron ore and coal stockpiles because of shipping delays and bad weather (Cyclone Debbie). Dwelling investment also declined (in every state except Victoria) but remember, that’s off a high base. 

The ABS said that compensation of employees (COE) rose 1% in the March quarter, “a pick up from the negative growth recorded in the December quarter, and is consistent with other labour market data. COE is still only 1.5 per cent higher through the year, continuing to contribute to the reduction in the household saving rate. The household saving ratio fell to 4.7 in the March quarter, half the rate it was in March quarter 2013.”

That was the most telling stat from the report, and the one that is worrying the RBA — amid record levels of household debt, Australians are keeping household consumption rising (up 0.5% in the quarter and a modest 2.3% for the year to March) by digging deeper into their savings. That is a real pressure point for the RBA and the economy.

The Australian Bureau of Statistics said in commentary that “growth was recorded across the economy with 17 out of 20 industries growing during the quarter. Strong growth was observed within the service industries including Finance and Insurance Services, Wholesale Trade, and Health Care and Social Assistance. Agriculture, Forestry and Fishing decreased after strong growth in the previous two quarters, while Manufacturing decreased for the tenth time in eleven quarters.”

The bears might be hoping for better luck next quarter but that promised “technical recession” looks a way off yet.

 

 

 

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Peter Fray
Peter Fray
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