Summary:
- Australia quarterly GDP expands 0.3% and 1.1% annually
- The economy marks 25 years of growth without dipping into recession
- Household consumption was the major driver of the GDP despite subdued wage growth
- GDP data comes a few days after the RBA monetary policy meeting where interest rates were left unchanged
The first quarter gross domestic product (GDP) in Australia expanded 0.3% on a quarterly basis, according to data from the Australian Bureau of Statistics (ABS). On a year over year basis, the GDP expanded 1.7%.
The data marked a new record for the country which has managed to duck recession for nearly 25 years. Despite the bright, optimistic outlook, there were concerns among economists with the pace of growth slowing sharply in the three months ending March 2017.
The Q1 GDP data showed that the Australian economy expanded at the slowest pace since 2009.
In the previous quarter (Q4, 2016), the Australian economy expanded at a pace of 1.1%. Despite rising during the quarter, the Australian economy was seen contracting in the third quarter of 2016. Data showed that the economy contracted 0.5% during the quarter ending September 2016.
Contributing to the GDP growth was the fact that household consumption growth increased. This was remarkable given that wage growth remained negative. Public investment and net exports also helped to contribute to the GDP growth albeit at a slower pace of increase.
Household consumption rose 0.5% during the quarter and about 2.3% compared to the same period a year ago.
The increase in household consumption came with a reduction in the household savings ratio. This ratio fell to 4.7% in the March quarter, down from 5.1% from the previous quarter.
The compensation of employees was also seen rising 1.0%, posting a rebound during the quarter. This managed to reverse the declines of 0.7% from the previous quarter.
Despite the weak quarterly GDP growth, nominal GDP which measures the value of all finished goods and services increased 2.3%. This gain came due to an increase in the terms of trade which rose 6.6% in the reported quarter. Compared to a year ago, nominal GDP rose 7.7% and marked the fastest pace of increase in nearly six years.
RBA Policy Meeting
The GDP data comes after the Reserve Bank of Australia (RBA) monetary policy meeting earlier this week. The central bank noted that real wages were restraining growth and household consumption.
The compensation of employees, despite rising is still seen to remain weak.
While the GDP data might be disappointing, it is unlikely that the RBA will respond with a rate cut anytime soon. The broader consensus is, however, moving towards the idea that further easing might be possible from the central bank, although not in the near term.
The market reaction to the GDP data was taken in stride as the AUDUSD managed to maintain its winning streak. The currency is seen rising for the past four consecutive days with price posting a new one-month high.
Traders were certainly not disappointed by the weak GDP report, which in a way was slightly better than expectations.
AUDUSD Technical Outlook
AUDUSD broke past the resistance level at 0.7516 – 0.7491 earlier on the day. This comes following the breakout from the falling trend line connecting the 21st March 2017 and 25th May 2017 highs. Further gains are likely to come by if AUDUSD establishes support at the recently broken resistance level.
This will put the upside towards 0.7600 at the very least. The near-term risks to AUDUSD will, of course, be next week’s FOMC meeting. Given that the rate hike is likely to have been priced in, there is a possibility for the Fed to turn cautious amid a string of weak economic reports.
This could potentially keep the AUDUSD supported in the near term, despite the impending rate hike.
