Australia’s economy squeezed out just enough growth last quarter to match the Netherlands’ record of 103 quarters without recession, but its stamina is in doubt as households struggle with paltry wage rises and punishing debt.
Australian government data yesterday showed that GDP rose a pedestrian 0.3 percent in the first quarter, a pullback from the previous quarter’s rapid 1.1 percent.
Yet that growth allayed fears of an outright contraction and helped lift the local dollar to a one-month high of US$0.7542.
The result should be a relief for the Reserve Bank of Australia, which just the day before said that the March quarter would likely disappoint.
However, the central bank expressed confidence that growth would pick up over the next couple of years to above 3 percent and held interest rates at a record low 1.5 percent, where they have been since August last year.
So far, investors seem almost convinced that the central bank is done with its five-year easing campaign. The futures market implies a 16 percent chance of another rate cut by December.
Australia has not seen a recession since 1991 and growth regularly outpaced its peers in recent years.
However, that changed in the March quarter, when annual growth slowed to 1.7 percent, below the 2 percent in the US and Britain.
Data from the Australian Bureau of Statistics showed output for the 12 months to March amounted to A$1.72 trillion (US$1.28 trillion) at current exchange rates, or about A$71,000 for each of the nation’s 24 million people.
Australian Treasurer Scott Morrison blamed bad weather for much of the slowdown and said that things could only get better as the year progressed.
Morrison launched his annual budget just a month ago and already its economic projections are looking ambitious.
Many economists suspect the current quarter will be marred by the giant cyclone that barreled through Queensland in late March and caused weeks of disruption to coal exports.
Perhaps the most worrying risk to growth is subdued consumer spending as Australians are burdened by record-low wage growth and high levels of mortgage debt.
The share of GDP contributed by wages is at its lowest since September 1964.
Household consumption grew at just 2.3 percent in the year to March, half the pace that was considered normal a decade ago. Household debt is a dangerously high 189 percent of disposable income.
To maintain their spending habits, Australians are having to save less. The savings ratio dropped to 4.7 percent in the March quarter, a fall of two full percentage points in just a year.
“A lot of the rise in consumption was because households further reduced their saving rate to a 10-year low,” Capital Economics chief economist Paul Dales said.
“They can’t do that indefinitely, so we suspect that slow income growth will soon result in more modest consumption growth. As such, we believe signs of a more sustained slowing in GDP growth are emerging,” Dales said.
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