Australia’s economy experienced another period of sluggish growth in the first quarter of the year, as households grappled with high interest rates and living costs. According to data from the Australian Bureau of Statistics, gross domestic product (GDP) expanded by a mere 0.1% compared to a revised 0.3% in the previous quarter, falling short of economists’ predictions of 0.2%. In comparison to the same period last year, the economy grew by 1.1%, slightly below estimates of 1.2%.
This annual result marks the weakest performance, excluding the pandemic, since the first quarter of 1992, when Australia was recovering from a recession. It also falls short of the decade average of 2.4%. As a result, there will likely be increased pressure on the Reserve Bank to initiate a cycle of interest rate cuts. The central bank has kept rates unchanged at 4.35% in its past four meetings.
Governor Michele Bullock reaffirmed on Wednesday that the Reserve Bank of Australia (RBA) bases its decisions on data and is open to various possibilities. She predicted that the country’s GDP would be low and highlighted the significant weakness in household spending.
The Australian dollar remained stable at around 66.50 US cents, while yields experienced a slight decrease as the market adjusted its expectations of a potential rate cut by the RBA this year. According to Bloomberg’s swaps data, money markets still indicate a roughly one-third chance of a rate cut by December.
The latest report indicated a 0.4% increase in household spending, accompanied by a decline in the savings ratio from 1.6% to 0.9%, as revised downwards.
Government expenditure contributed 0.2 percentage points to the GDP. Economists believe that the outlook for public demand remains strong, with additional spending planned in the budget expected to be implemented in the upcoming financial years. Furthermore, there are numerous ongoing public infrastructure projects in the pipeline.
According to Katherine Keenan, the head of national accounts at the ABS, private investment decreased by 0.8% due to a significant decline of 4.3% in non-dwelling investment. This decrease was primarily driven by a reduction in mining investment and a decrease in the number of small to medium building projects under construction.
Bloomberg Economics anticipates that overall growth will remain slow as consumer spending and residential construction continue to weaken and hinder economic activity.
The RBA (Reserve Bank of Australia) predicts that annual economic growth will reach its lowest point at 1.2% in the middle of this year, before gaining momentum once again. Most economists expect that the RBA will initiate its easing cycle later this year.