Below trend growth to continue
Real GDP figures showed a pick-up in growth to 1.0% in Q1 (from 0.5% in Q4) lifting growth to 3.1% over the year.
The Bigger Picture – A Global and Australian Economic Perspective – June 2018
Global: growth was marginally softer in Q1, reflecting a modest slowdown in the advanced economies. This was particularly evident in the Euro-zone and Japan, suggesting some divergence in growth across countries after having previously exhibited a degree of synchronisation in growth for much of 2016 & 2017. Growth in the big emerging markets was slightly stronger led by a rebound in India, but again trends diverged between economies. It appears that the current global upswing has peaked (or is near that point). That said, our forecasts still imply above trend growth in both 2018 and 2019 before easing back to the long-term average of 3.5% in 2020.
Australia: National Accounts data for Q1 2018 showed the economy picked up some momentum following the weaker-than-expected outcome in Q4 2017. Growth was supported by both the household and government sectors, as well as a bounce back in net exports. Underlying business investment contributed little – though looking at the sub-components paints a slightly more positive picture. Investment in machinery & equipment (largely the non-mining sector) continued to support business investment; while the drag from mining appears to be fading. Household consumption growth was relatively weak – likely reflecting the headwinds faced by consumers which we expect to persist in 2018. Overall, the rise in economic momentum will likely lead to continued growth in employment but wages growth and inflation look to have remained subdued. We expect employment growth to remain solid over 2018 and into 2019, resulting in a decline in the unemployment rate to around 5.0%. This tightening should in-time see a rise in the pace of wages growth and inflation. We expect to have seen enough of a tightening in the labour market and enough evidence of a meaningful pick-up in wages by around mid-next year for the RBA to begin to lift rates from the current low settings.
For more details, please refer to the attached document.
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