Australia: Third weak quarter of growth - NAB

Analysts at National Australia Bank point out that the Australia’s Q1 national accounts confirmed a third weak quarter of growth as the household sector continued to weigh with further slowing in household consumption growth and another substantial decline in dwelling investment.

Key Quotes

“Net exports and public spending offset some of this weakness, while business made a small contribution. Mining investment continued to decline in the quarter while investment in the non-mining sector rose.”

“Looking forward, we have not materially changed our forecasts for 2020 and 2021, for which we see growth of 2¼% – well below trend and restrained by ongoing weakness in the household sector. In the near-term we have downgraded our forecasts, incorporating the weak outcome for Q1 and a softer expectation for Q2 mostly a result of weakness in consumption.”

“Overall, we see through the year growth falling to 1.3% in Q2 and year-average growth in 2019 of 1.7%. Consequently, we see a weaker labour market, with slowing employment growth and an upturn in the unemployment rate – reaching 5.5% by the end of 2021. As a result, wages growth can be expected to remain weak and inflation is now only expected to return to the bottom of the RBA’s target band by end-2021.”

“We still see a rate cut in August but would not be surprised by a move in July. In addition, we now see a second cut in the second half of this year, and while heavily data dependent we have pencilled this in for November.”

“We also think additional fiscal policy action will be required to provide a boost to the economy and some risk that should further stimulus be required, that the RBA will turn to a combination of alternative policy tools in early 2020.”