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Australia GDP Q2 2018

Australia: Households and government spending fuel GDP growth

Australia’s economy slowed somewhat in the second quarter but remained robust overall, according to figures recently released by the Australian Bureau of Statistics (ABS). GDP expanded 0.9% quarter-on-quarter in seasonally-adjusted terms, following a revised 1.1% increase in the first quarter (previously reported: +1.0% quarter-on-quarter). The result overshot market analysts’ expectations of a 0.7% expansion. On an annual basis, the economy grew 3.4%, up from Q4’s 3.2%, marking the fastest pace of growth since Q3 2012.

On the domestic front, the expansion was driven by strengthening private consumption and solid government spending. Consumer spending accelerated from a 0.5% quarter-on-quarter expansion in Q1 to a 0.7% increase in Q2. The pick-up in household spending benefited from steady job creation, a falling unemployment rate and moderate inflation. Moreover, a decline in the household saving ratio also contributed to the acceleration, countering the effects of slow wage growth. Government spending also supported the economy in the second quarter, rising 1.0% (Q1: +1.6% qoq). On the other hand, fixed investment was flat; an increase in dwelling investment was compensated by a slight drop in both non-dwelling and machinery and equipment investment.

Growth in exports, meanwhile, weakened significantly, expanding 1.1% in Q2 (Q1: +3.0% qoq) sustained by solid exports of farm goods and liquefied natural gas. Import growth also lost steam, coming in at 0.4% (Q1: +1.7% qoq), due to weaker demand for investment goods. As a result, the external sector’s net contribution to growth was plus 0.1 percentage points in Q2, broadly unchanged from the contribution of 0.2 percentage points in Q1.

Growth is expected to accelerate this year. Accommodative monetary policy together with upbeat business confidence should buttress non-mining business investment. Sustained overseas demand for commodities will fuel export growth, while consumer spending should also gain steam after a subdued first quarter, underpinned by steady job creation and accelerating wage growth. High debt levels and falling house prices, however, could cloud the outlook.

Australia GDP Forecast

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