Key points

• GDP rose by 0.1% q/q (1.1% y/y) in line with our expectation and slightly weaker than consensus and the RBA’s average quarterly expectation for H1. The outcome was supported by household consumption and public demand while business investment was a small drag. Volatility in trade and net exports were largely offsetting while dwelling investment made a flat contribution.
• Overall, aggregate GDP growth continued to soften in both annual and quarterly terms (and is still falling in per capita terms), but the picture of the underlying dynamics has shifted slightly with large upward revisions to household consumption as well as a quarterly outcome that showed more resilient outcomes for household spending.
• Relatedly, the household saving rate was revised down and, abstracting from changing seasonality in tax payments, has been flat for around 3 quarters at a low level (around 1.0%). Still, the easing in pressures on household disposable incomes as inflation slows is becoming more evident.
• The broader price and wage measures contained in this release paint a similar picture to the CPI. Q1 saw some further moderation in price pressure but progress has slowed and pressures still remain elevated. Encouragingly, however, both productivity and unit labour costs growth point to some moderation in consumer price pressure – though these can be volatile on a quarterly basis.
• Today’s data doesn’t change our view of the economy. We expect Q2 to remain soft overall but see a pickup in H2 driven by easing pressures on households and a rebound in consumption growth. That sees below trend growth of around 1.5% this year (or possibly lower), but closer to trend growth in 2025.
• In our view, the continued pattern of subdued growth will give the RBA comfort that the output gap is closing and inflationary pressures will continue to ease – despite the recent upside surprises on the CPI. That sees the RBA on hold rather than a near-term hike, with a first cut likely to come late in the year – though we acknowledge the risk this may be slightly later. The path of inflation moderation is set to remain gradual and uneven, while the evolution of consumption behaviour and the labour market remain key factors.

For further details please see the NAB Australian Economic Update – GDP Q1 2024