Australia: Q1 growth stronger than expected, boosted by surging exports
June 1, 2016
Australia’s economy beat expectations in the first quarter of the year as an increase in exports buttressed the largest expansion in four years. The economy grew a seasonally adjusted 1.1% over the previous quarter, surpassing the revised 0.7% increase observed in Q4 (previously reported: +0.6% quarter-on-quarter) and overshooting market expectations of a 0.8% rise. The contribution from the external sector offset dismal business investment figures stemming from the collapse in commodity prices. On a yearly basis, GDP in Q1, grew 3.1%, up from 2.9% recorded in Q4.
Domestic demand was dragged down by fixed investment, while other components saw only marginally weak demand. Total consumption grew 0.7% inQ1, in line with Q4’s reading. Private consumption growth inched downward from 0.8% in Q4 to 0.7% in Q1, a figure broadly in line with the long-run average. Government consumption growth ticked upward from 0.6% in Q4 to 0.9% in Q1. Fixed investment continued to be the soft spot in the Australian economy as resource extraction firms further scale back capital expenditure. The deterioration accelerated in Q1, with fixed investment falling 1.7% (Q4: -0.2% quarter-on-quarter). Q1’s decrease was due to drops in new engineering projects as well as new buildings. These components continued to drag on domestic demand, which slowed from a 0.5% increase in Q4 to a 0.1% expansion in Q1.
The external side of the economy offered a brighter picture: export growth surged in Q1 as both services and goods exports observed strong growth. Mining exports made up a substantial amount of the increase as record-low prices offered by Australian mining firms improved their competitiveness. Tourism and education, which are included in service exports, have also benefited from increased competiveness stemming from the weak AUD and are helping the economy transition away from its reliance on resources. Overall, exports grew 4.4% in Q1, up from 0.4% in Q4, while imports contracted 0.8%, contrasting Q4’s 0.5% increase. As a result, the external sector’s contribution to growth grew from zero percentage points in Q4 to plus 1.1 percentage points in Q4.
Author: Robert Hill, Economist