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--Household Savings Ratio Lowest Since December 2007
By Sophia Rodrigues
SYDNEY (MNI) - Australia's first quarter GDP rose more than expected,
thanks to a rebound in net exports and private investment. However the details
related to households were weak and continue to pose doubts about the outlook
for household consumption, and thus the Reserve Bank's monetary policy.
Data published by the Australian Bureau of Statistics Wednesday showed GDP
grew 1.0% q/q compared with an upwardly revised 0.5% (from +0.4%) growth in Q4.
In y/y terms, GDP rose 3.1% following a 2.4% rise in Q4. The outcome was higher
than MNI median forecast for +0.85% q/q and +2.8% y/y, with the 3.1% y/y growth
outside the range predicted by economists.
The 3.1% y/y growth pace was the biggest since the second quarter of 2016.
The main contributor to growth was a 0.4 percentage point contribution from
net exports as exports rose 2.4% q/q and imports grew 0.5%. The rise in imports
was mainly due to a 4.3% increase in capital goods which offset the fall in
consumption and intermediate goods.
Inventories contributed 0.2 point to Q1 GDP due largely to a surge in
wholesale inventories. Private investment contributed 0.2 point, a big rebound
from a 0.3 point detraction in Q4 while public investment detracted 0.1 point
after an addition of similar magnitude in Q4.
Government expenditure contributed 0.3 point in Q1, a slowing from 0.4
point in Q4
The main disappointment was household final consumption expenditure which
rose just 0.5% q/q and contributed 0.2 point, compared with a 0.6 contribution
in Q4. This was the lowest contribution since 0.2 point in Q1 of last year.
The biggest disappointment was a fall in household savings ratio which
dropped to 2.1% in 2.1% from 2.3%, and was the lowest since December 2007. The
fact that the savings ratio fell despite a slowing in household consumption is a
concern. This worry could exacerbate if households slow their consumption
further because of weakness in housing prices or because they get worried about
dipping further into savings.
Household consumption outlook is also worrisome because wage measures
remain weak. Average earnings per worker (non-farm) rose 0.5% q/q in Q1,
rebounding from +0.1% in Q4 but the y/y pace eased to +1.6% from +1.7%. The y/y
earnings pace remains very muted compared with plus-3% rate seen prior to 2014.
This would affect the RBA's forecasts for growth on which depends the
outlook for wages and inflation, and thus the guidance for the next move in the
cash rate to be up.
One bright spot was a rise in nominal GDP which grew 2.2% q/q, thanks to a
3.3% rise in terms of trade during the quarter. The y/y pace rose to 3.9% from
3.5% but it is lower than 5.9% seen in Q3 of 2017.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: email@example.com