The growth of Australia’s economy persisted during the March quarter with the Australian Bureau of Statistics (ABS) reporting a 0.8 per cent increase to GDP.
The quarterly GDP figure was just above market expectations of a 0.7 per cent rise while the annual growth rate sat at 3.3 per cent versus an expected rise of 3.0 per cent.
“The economy grew for a second consecutive quarter following a contraction in the September quarter 2021, when economic activity was affected by the Delta outbreak,” commented ABS acting head of National Accounts Sean Crick.
Flooding in NSW and Queensland as well as the Omicron variant impacted activity in the March quarter, with growth slowing compared to the December quarter when the annual growth rate reached 4.2 per cent.
The ABS said that household and government spending drove growth during the first three months of 2022 with total final consumption contributing 1.4 percentage points to GDP.
Household spending was up 1.5 per cent with spending on discretionary goods and services lifting 4.3 per cent to exceed pre-pandemic levels for the first time.
“Household consumption continued to drive growth this quarter. Following the easing of COVID-19 restrictions, household spending on transport services, hotels, cafes and restaurants, and recreation and culture increased,” noted Mr Crick.
Domestic final demand contributed 1.6 percentage points to GDP growth in the March quarter, with household final consumption expenditure contributing 0.8 points and government consumption contributing 0.6 points on the back of increased health expenditure.
Furthermore, the ABS noted that the government’s response to the NSW and Queensland floods had also contributed to the rise.
Net exports subtracted 1.7 percentage points from the quarter’s growth following the strongest rise in imports since the December quarter of 2009, partly offset by a jump in business inventories which contributed 1.0 percentage points to GDP.
Commenting on the data, Commonwealth Bank (CBA) head of Australian economics Gareth Aird said that the Australian economy was off to a very bright start at the beginning of 2022.
“But the data predates the RBA’s May rate hike and a lot of the information doesn’t tell us much about the future. There are already signs that rising rates and the expectation of further hikes will act to cool the economy,” he warned.
“National home prices have begun their descent from lofty levels and consumer confidence is well below average levels. Household demand for credit will move lower from here and there are some tentative signs in our spending data that cost of living pressures are starting to bite.”
ANZ senior economist Felicity Emmett also noted that measures of labour costs were now accelerating at a rapid rate, with non-farm average earnings per hour up 2.7 per cent quarter-on-quarter and 5.3 per cent year-on-year based on the bank’s calculations.
Subsequently, ANZ now expects that the RBA will deliver a 40-bp rate hike next week, up from its previous prediction of a 25-bp lift.
“While GDP was in line with our expectations, today’s data confirmed the very strong average hourly wages growth that yesterday’s Business Indicators report implied,” said Ms Emmett.
“This suggests to us that policy needs to lean more strongly against the broadening of inflation pressures. As such, we think the strength of the price and wage measures in the GDP data should be enough to convince Governor Lowe that ‘there is a very strong argument’ to deviate from a regular 25-bp move and get the cash rate a little higher, a little bit faster.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
