Australia: GDP growth jumps on a rebound in fixed investment and buoyant exports
Australia’s economy accelerated significantly in Q1 after two consecutive quarters of deceleration, according to figures recently released by the Australian Bureau of Statistics (ABS). GDP expanded 1.0% quarter-on-quarter in seasonally-adjusted terms, double the 0.5% increase in Q4. The result represented the best reading in three quarters and markedly overshot market analysts’ expectations. On an annual basis, the economy grew 3.1%, notably up from Q4’s 2.4%. It marked the fastest pace of growth since Q2 2016 and the second time in five and a half years that the economy grew above 3.0% in year-on-year terms.
On the domestic front, the expansion was driven by a rebound in fixed investment, which swung from a 0.9% quarter-on-quarter contraction in Q4 to a 0.5% expansion in Q1. The expansion came on the back of a strong increase in non-mining business investment, as well as the first quarter of growth in housing construction following two consecutive quarters of contraction. Government spending also supported growth in the first quarter, rising 1.6% (Q4: +2.2% quarter-on-quarter). Household consumption continued to expand, but at a much slower rate than in the previous quarter, restrained by subdued wage growth, rising oil prices, a slackening housing market and high levels of household debt. It increased a mild 0.3% in Q1, less than half the 1.0% rise recorded in Q4.
Exports, meanwhile, expanded robustly, rebounding to 2.4% growth in Q1 (Q4: -1.5% qoq) on higher exports of Liquified Natural Gas (LNG), coal, iron ore and non-monetary gold. Imports grew 0.5% (Q4: +1.6% qoq), especially due to capital goods imports. As a result, the external sector’s net contribution swung from minus 0.7 percentage points in Q4 to plus 0.4 percentage points in Q1.
Looking ahead, rising non-mining business investment and public infrastructure spending should support growth. Moreover, resilient global demand and increased exports of liquified natural gas are expected to boost overseas sales. However, Australia’s bulky external debt leaves it exposed to potential capital outflows, while high levels of household debt could weigh on consumer spending.