- Economists polled by Reuters had forecast a 2.4% expansion in the fourth quarter of 2022, compared with an expansion of 2.7%.
- On a quarterly basis, GDP rose 0.2%, compared with the 0.3% expected in a Reuters poll.
A view of the Yarra River flowing through downtown Melbourne, Australia.
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Australia’s first-quarter GDP expanded 2.3% year-on-year, slightly below analyst expectations.
Economists polled by Reuters had forecast a 2.4% expansion, compared with a 2.7% expansion in the fourth quarter of 2022. GDP rose 0.2% on a quarterly basis, compared with the 0.3% expected in a Reuters poll. .
Catherine Keenan, Head of National Accounts Australian Bureau of StatisticsSaid: “This is the sixth consecutive rise in quarterly GDP, but slower growth after the Covid-19 delta lockdowns in the September quarter of 2021.”
“Private and public gross fixed capital formation were the main drivers of GDP growth this quarter,” Keenan said.
Measures of GDP are key to the Reserve Bank of Australia’s monetary policy decision-making process. On Tuesday, the RBA surprised markets and raised its benchmark policy rate by 25 basis points to 4.1%, an 11-year high.
Early Wednesday morning, Reserve Bank of Australia Governor Philip Lowe delivered a speech At the Morgan Stanley Australia Summit, the central bank reiterated its stance that it would seek to take a “short path” on the country’s monetary policy.
In this “short path” that Lowe envisions, Australia’s inflation returns to its 2% to 3% target range, the economy continues to grow, and gains in the labor market are preserved.
“There’s still potential to go down this path, and our ambition is to do that. But it’s likely to be a narrow path and a bumpy road with risks on both sides,” Lowe said.
Lowe clarified that the intent to protect labor market development “does not mean [RBA] Hyperinflation can be tolerated for a long time.”
Hence, “the decision to hike interest rates again was taken on Tuesday to provide greater confidence that inflation will return to target within a reasonable timeframe,” he said.
Lowe listed the economic data points the RBA will be looking at to shape its forward moves, including growth in the global economy, housing costs and unit labor costs.
Abhijit Surya, an Australia and New Zealand economist at Capital Economics, thinks productivity growth is “poor” with GDP slowing and projected to decline further.
Hourly GDP fell 0.3% quarter-on-quarter, Surya wrote, resulting in a 4.6% annual drop in productivity — the largest on record.
Labor market data suggest that productivity will weaken further this quarter, which will encourage unit labor cost growth and keep service inflation stubborn.
Surya currently has a top estimate of the RBA’s benchmark rate of 4.35%, but he points out that in light of the GDP readings and Roe’s speech, “there is a real risk that the RBA will raise rates further”.