Australia Q1 GDP growth hits weakest pace in 1-1/2 years as consumers struggle
AUSTRALIA’S economy grew at the weakest pace in 1-1/2 years last quarter as high prices and rising interest rates sapped consumer spending, while emerging signs pointed to further softness ahead amid elevated borrowing costs and a slowdown in global growth.
Data from the Australian Bureau of Statistics on Wednesday (Jun 7) showed real gross domestic product (GDP) rose 0.2 per cent in the first quarter, easing from 0.5 per cent in the previous quarter and under forecasts of 0.3 per cent.
Annual growth came in at 2.3 per cent, also missing forecasts for 2.4 per cent expansion.
The report contained initial signs that domestic price pressures are easing and evidence that households are saving less to meet high costs of livings and rising mortgage rates.
Domestic price growth slowed to 1.1 per cent, after a 1.4 per cent rise in the December quarter, and household savings as a share of income shrank to 3.7 per cent, the lowest level since 2008, with consumers cutting back on discretionary spending such as household equipment and vehicles.
Household consumption rose only a meagre 0.2 per cent in the March quarter, contributing 0.1 per cent percentage points to GDP, mostly from spending on essential goods and services.
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Price pressures have prompted the Reserve Bank of Australia (RBA) to raise its cash rate by 400 basis points since last May, taking it to an 11-year high of 4.1 per cent and flagging more tightening may still be required.
Markets have priced in a 60 per cent chance of another hike in July.
Compensation of employees (COE), the broadest measure of economy-wide labour costs, increased 2.4 per cent in the first quarter from the December quarter when it rose 2.0 per cent, a result that would worry policymakers.
RBA governor Philip Lowe has highlighted that fast increasing unit labour costs are a risk to the central bank’s inflation outlook, if productivity failed to pick up from the current flat levels. REUTERS
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