Australia's GDP exceeds estimates, signalling more rate rises
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AUSTRALIA'S economy expanded faster than forecast in the first 3 months of the year led by household consumption, bolstering the case for the central bank to keep raising interest rates.
Gross domestic product (GDP) advanced 0.8 per cent from the final 3 months of last year, higher than economists' estimate for a 0.7 per cent increase, Australian Bureau of Statistics (ABS) data showed Wednesday (Jun 1). That took annual growth to 3.3 per cent, outpacing the pre-pandemic average of around 2 per cent and economists' estimate of 3 per cent.
Australia's 3-year government bond yield rose after the release, trading at 2.925 per cent at 11.58 am in Sydney. The currency was little changed as dollar movements remain its key driver.
The Reserve Bank of Australia (RBA) will see the data as validation of its hawkish stance after raising rates for the first time in 11-1/2 years last month to 0.35 per cent. Money markets are pricing in a benchmark of 2.7 per cent by year's end.
New Prime Minister Anthony Albanese has acknowledged the strength of the A$2.2 trillion (S$2.2 trillion) economy while pointing to a darkening global outlook and accelerating inflation that's squeezing household income.
The household saving to income ratio fell to 11.4 per cent - the lowest level since the onset of the pandemic - from 13.4 per cent as the increase in household spending outpaced growth in household income, the ABS said.
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Australia's labour market is the tightest in almost 50 years and consumer spending has remained solid in the face of soaring prices. Both RBA Governor Philip Lowe and Albanese are hoping a jobless rate below 4 per cent will spark a faster pick-up in wages, which rose at just half the pace of CPI in the first quarter.
Wednesday's data showed companies' wage bills climbed 5.5 per cent in the first quarter from a year earlier. The increase came even as rising cases of the Omicron variant of the coronavirus led to large fall in hours worked, particularly in January.
Other details from the GDP report:
- Household spending jumped by 1.5 per cent, contributing 0.8 percentage point to GDP growth
- Government spending climbed 2.7 per cent, adding 0.6 point
- Imports were the biggest drag on GDP growth climbing 8.1 per cent from the prior quarter - the biggest increase since December 2009 - and detracting 1.5 percentage points from GDP
- Dwelling investment fell 1 per cent, cutting 0.1 point
- Flooding affected supply chains and weakened activity in construction and mining BLOOMBERG
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