Overview

Over the last month we have had lots of new data and another RBA announcement. While lots has happened not much has really changed vis-à-vis our expectations and how the data has, so far, played out.

First, on the big picture, the National Accounts was exactly in line with our overall expectations with GDP growth only just positive at 0.1% q/q and 1.1% y/y. Reflecting some new data showing locals spending more overseas, private consumption was stronger than we expected – up 0.4% in Q1 and history revised up to 1.3% over the past year – though for GDP purposes the higher consumption is offset by a larger negative on imports. Public demand was also stronger than expected – with public consumption up 1% in Q1 and 4.1% y/y. Against that, investment – both in dwellings and business investment – was weaker. Increased stocks and larger detraction from net exports (especially imports) largely cancelled themselves out. Overall, year-ended GDP growth was the lowest since 1992 (excluding the pandemic). One of the outcomes of the statistical changes was that the savings ratio fell further to 0.9%. Productivity was flat and cost pressures remained elevated. The domestic demand deflator was up 1% in Q1 and stronger in services.

When we turn to the NAB Business Survey for May and our internal data, it is really hard to see any increase in the growth momentum in Q2. The Business survey showed a further edge down in business conditions (with below average readings in retail, and most service sectors). That, together with very poor forward orders – again in retail, wholesale and hospitality – saw business confidence turn negative. Capacity utilisation is still elevated suggesting that demand still exceeds supply but the gap is closing. Price pressures however remain elevated. Our monthly transaction data series suggests that retail and consumption moved down in May, but the labour market is still hanging in there with unemployment still low at 4% – albeit edging higher in trend terms.

For further details please see, Comment from the Chief Economist (June 2024)