MNI ANALYSIS: Australia Solid GDP Not Diminishing H'Hold Worry

--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: sophia.rodrigues@marketnews.com

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