Australian economic update: GDP up 1.6%q/q in Q1

JPMorgan
Economic Research
June 6, 2007

Australian economic update GDP bounced 1.6%q/q in Q1

Australia's GDP growth was an unexpectedly firm 1.6%q/q in Q1 (JPMorgan and consensus 1.2%), the strongest quarterly growth rate since December 2003. This took annual growth in the economy back up to 3.8%oya, from an upwardly revised 2.9% in the year to December. The upside is that the unexpectedly strong growth in Q1 means the economy has a much firmer foundation than expected. The downside, though, is that GDP growth now is well above potential (the economy's speed limit), which has slowed owing to the sustained drop in productivity growth and despite faster growth in the labour force. The widening gap between the economy's actual and potential growth rates means that inflation pressure will build - the risk of earlier rate hikes by the RBA, therefore, has risen.

The strength in the first quarter was broad based - household spending rose 1.5%q/q, business investment soared nearly 8%q/q (although the effective privatization of Telstra last November inflated this number), dwelling investment rose 1.5%, and even export volumes rose 1.4% despite evidence of worsening capacity constraints. An accumulation of non-farm inventories (up 0.6% as expected) also added to GDP growth in the quarter. The only laggards were imports, which subtracted 0.5% points for the quarter, and public investment, although some of this weakness was due to the shift in Telstra's investment spending from the public to the private sector.

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Full release (PDF): http://img.scoop.co.nz/media/pdfs/0706/GDP_060607.pdf

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