Growth Slows But Domestic Demand Strengthens

Q1 GDP was slightly lower than expected at 0.2% q/q and 2.3% y/y after an upwardly-revised 0.6% q/q and 2.6% y/y in Q4. The headline looks weaker than the details with domestic demand rising 0.6% q/q, driven by capex. GDP was impacted by detractions from net exports driven by higher imports and from the statistical discrepancy. While quarterly growth was the slowest since the pandemic, solid domestic growth is likely to maintain pressure on domestically-driven prices.

• Household consumption rose 0.2% q/q after 0.3% in Q4 to be up 3.5% y/y, driven by spending on essential goods & services. Given that real retail sales fell 0.6% q/q, services remained robust in the quarter. Government spending was +0.1% q/q after +0.6% in Q4 to be down 0.1% y/y.
• The household savings ratio fell to 3.7% in Q1 from 4.4%, the lowest since 2.6% in Q2 2008 during the financial crisis. As inflation, higher income tax and rates bite, households are saving significantly less.
• Private GFCF contributed 0.2pp to growth as it rose 1.4% q/q but is only up 0.9% y/y and public GFCF added 0.15pp. There was a 6%q/q increase in machinery investment while dwellings fell 1.2% q/q and -4.4% y/y. The inventory contribution was flat.
• Exports rose a solid 1.8% q/q to be up an impressive 10.8% y/y but were outpaced by imports +3.2% q/q. Consumption goods imports increased 4.9% q/q and capex goods +5.3% q/q, another sign of robust domestic demand. Thus net exports detracted 0.2pp from growth.
• The statistical discrepancy detracted 0.1pp from GDP.

Source: MNI - Market News/ABS

Australia domestic demand y/y%

Source: MNI - Market News/ABS