(Bloomberg) -- Australia's economy slowed in the first quarter, constrained by weak net exports and a drop in housing investment. The currency jumped as annual growth beat expectations.
Key Points
- Gross domestic product rose 0.3% from prior quarter; economists estimated 0.3% gain
- Economy grew 1.7% from a year earlier, compared with a forecast 1.6% increase
- Household savings ratio was 4.7%; household spending rose 0.5% q/q
- Investment in total dwellings fell 4.4% in the quarter
- Aussie dollar bought 75.40 U.S. cents at 12.52 p.m. in Sydney, compared with 75.03 cents before report
Big Picture
The Reserve Bank of Australia signaled Tuesday it would look through slower first-quarter growth when it left its benchmark rate on hold, saying the pace should still accelerate above 3 percent in the next couple of years. The biggest detractors from growth were exports and housing investment as weather factors including storms and floods materially impacted both industries.
The economy was supported by mining firms restocking inventories, after taking advantage of strong commodity price gains to sell as much as possible in the latter part of 2016. Growth in household spending halved on the previous quarter, while a drop in the savings rate to its lowest in almost nine years hints at some raiding of the coffers to cover bills and other essentials.
Economist Takeaways
“The weakness in today's data extends beyond the weather,” said Gareth Aird at Commonwealth Bank of Australia. “The slowdown in the domestic economy has occurred at a time when the global economic backdrop has improved. This suggests that policymakers have their work cut out for them if Australia is to post the kind of growth outcomes they have forecast over 2017.”
“A lot of the rise in consumption was because households further reduced their saving rate,” said Paul Dales at Capital Economics Ltd. “They can't do that indefinitely, so we suspect that slow income growth will soon result in more modest consumption growth.”
“Today's data are consistent with monetary policy remaining on hold,” said Riki Polygenis at National Australia Bank Ltd. “The RBA will look through the volatility in GDP, however mixed labor market outcomes and weak wages and inflation data will prevent any hike.”
Other Details
- Biggest detractor from quarterly growth was exports, which cut 0.4 percentage point
- Household consumption was driven by rises in rent and other dwelling services and electricity, gas and fuel
- Savings ratio fell to lowest since September 2008
- Largest rise in mining inventories since first quarter of 2012
To contact the reporter on this story: James Thornhill in Sydney at jthornhill3@bloomberg.net.
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke, Victoria Batchelor
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