Growth, inflation and labour market all easing
A soft start to 2023
GDP rose by 0.2% q/q (2.3% y/y) – in line with our expectations and a touch softer than market and RBA forecasts (consensus 0.3%). The expenditure side was in line with partials and continues to paint a picture of soft consumption growth and weakening housing construction, with increasing evidence that higher rates and inflation are weighing on spending. The nominal side of the accounts reflected the pattern we have seen in other price data, with the pace of inflation easing in quarterly terms but remaining very high. Broader wage and labour cost measures also continue to track strongly reflecting the tightness in the labour market with the Statistician noting “higher than usual end of year bonuses and incentives paid to workers”.
Today’s release doesn’t change our view that growth will slow sharply through mid-2023 and indeed shows signs that rates are flowing through to softer household spending. We continue to see weak growth through mid-2023 with annual growth of just 0.7% over 2023 and 1.2% over 2024. For the RBA, the national accounts continue to reflect broad based price pressure through strong deflator growth albeit at a slightly softer pace. While volatile on a quarterly basis, nominal unit labour costs continued to grow strongly up 2% q/q and are now tracking near 8% y/y. The evolution of these cost pressures will continue to be important as the RBA seeks to return inflation to target as global pressures fade, but domestic pressures (in services) continue.
For further details please see the NAB Australian Economic Update (GDP Q1 2023)
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