Australia: Economy records the slowest increase in a year and a half in Q1
GDP reading: The economy slowed to a crawl in the first quarter of 2024, with GDP growth edging down to 0.1% on a seasonally adjusted quarter-on-quarter basis from an upwardly revised 0.3% in the fourth quarter of last year. Q1’s reading was the worst since Q3 2022 and fell short of market expectations. On an annual basis, economic growth slowed to 1.1% in Q1, following the previous period’s 1.6% growth and marking the worst reading since Q4 2020.
Drivers: Domestically, the quarterly moderation chiefly reflected fixed investment contracting 0.9% in Q1 (Q4 2023: -0.2% s.a. qoq), marking the worst reading since Q2 2020. The sharper downturn was driven by falling investment in both public and private projects. More positively, private consumption improved slightly to a 0.4% expansion in seasonally adjusted quarter-on-quarter terms in the first quarter (Q4 2023: +0.3% s.a. qoq), which marked the best reading since Q2 2023. Households increased their spending on essential items, such as electricity, rent, food and health, as well as on discretionary spending. Government expenditure, meanwhile, ticked up to a 1.0% expansion in Q1 (Q4 2023: +0.8% s.a. qoq) due to a rise in social spending.
On the external front, net trade detracted from overall growth in contrast to the previous quarter: While exports of goods and services bounced back from Q4 2023’s 1.3% decline, growing 0.7%, imports of goods and services rose 5.1% in Q1 (Q4 2023: -3.5% s.a. qoq).
GDP outlook: Moving to the current quarter, our panelists expect the economy to pick up pace, and available data bears out this prediction: The PMI in April–May and business sentiment in April improved from January–March. Over 2024 as a whole, our Consensus is for economic growth to cool from 2023 as sticky inflation and high interest rates constrain activity. That said, recovering tourism, healthy population growth and solid global commodity demand will buttress overall growth. The performance of China’s economy—a key market for Australian exports—is a two-sided risk.
Panelist insight: United Overseas Bank analyst Lee Sue Ann commented on the outlook:
“Going forward, high interest rates and weak consumer spending will continue to weigh on the economy, with growth expected to remain subdued over most of 2024. We have revised our full year 2024 GDP forecast slightly lower to 1.2% from 1.3% previously. Growth momentum is then expected to pick up gradually in 2025 as a recovery in real incomes supports an increase in household spending.”
Andrew Ticehurst and David Seif, analysts at Nomura, added:
“The GDP data reveal a litany of lowlights on the growth front. However, the silver lining is that they also highlight some moderation in price and wage pressures. We think the RBA would likely take some comfort from the latter, thinking that its strategy is working. We continue to view any further rate hikes as quite unlikely, and continue to forecast a gentle easing cycle, with a first 25bp rate cut around November.”