What to expect from Australia’s Q1 GDP data due tomorrow?

Highlights

• The upcoming GDP data for the March quarter is expected to be significantly lower than the previous quarter’s data.
• Big four banks have projected dismal economic growth figures for the March quarter.
• Consumer spending has kept the economy buoyant in the periods following the March 2022 quarter.

As the March quarter Gross Domestic Product (GDP) data is awaited, speculations are rife that factors leading to a stifled economy could weigh heavily on the upcoming data. The March quarter has been marked with more than just one hindrance to economic growth, justifying the emerging concerns about the GDP data. Though the economy advanced slightly in April, March figures are largely expected to be subdued.

Factors pushing down on Australia’s economic growth include the rampant flooding across the east coast, fears caused by the spread of the Omicron variant and a disruption of the overall global supply chain. Additionally, lockdowns in China have exacerbated the supply-side problems. Declining exports have also clouded the economic outlook, with international pressures bogging down domestic growth.

The upcoming GDP figure is expected to be a wake-up call for the newly elected government and the new Treasurer, Jim Chalmers. As inflation continues to surge, a slowing economy could be extremely damaging. In fact, a slow start to the year could mean an even slower journey through the rest of the year. It will be interesting to see if March quarter statistics will pave the way for Reserve Bank’s next interest rate hike.

What is Australia’s GDP growth?

Australia’s GDP growth in the December quarter stood at 3.4%. This means that the economy expanded by 3.4% from September 2021 quarter to the December 2021 quarter. Though the December quarter was marked by a rise in Omicron cases, it was also the time when the economy was coming out of lockdowns. This served as a turning point for Australia’s economic growth, leading to strong GDP data during the December quarter.

However, the tide has turned as rampant supply-side delays and a rapid increase in the demand for goods have increased the demand-supply gap. The supply-side shock has offset the gains from the re-opening of the economy from lockdowns.

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What do big banks say about GDP growth?

The big four banks expect the economy to take a downturn following the massive disturbance caused by global factors. Additionally, climate adversities have been especially unfavourable for Australia, with forest fires and floods hurting domestic activity.

Westpac Banking Corporation (ASX: WBC) expects the quarterly growth to be a dismal 0.2%, while the National Australia Bank Limited (ASX: NAB) expects a growth rate of a mere 0.1%. Alternatively, Australia and New Zealand Banking Group Limited (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) anticipate slightly better growth rates of 0.6% and 0.5%, respectively.

Though these low rates reflect a slower start to the year, many economists believe that growth will pick up in the remaining year. Growth is likely to remain robust in 2022 and 2023. However, a slowdown could emerge again by the end of this year as rising interest rates accumulate into heavy repayment amounts. However, as has been the case with it before, the Australian economy is largely expected to stay resilient to global shocks and remain buoyant even in times of stress.

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Consumer spending deserves attention

Improving consumer spending data has maintained economists’ faith in the Australian economy’s rebound. The first and foremost evidence of the same is the April retail sales data released by the Australian Bureau of Statistics (ABS). Retail turnover rose 0.9% in April 2022, with inflationary concerns taking off slightly during the month.

Looking forward, a tight labour market could lead up to an improvement in wages, with individuals reducing their ratio of income to savings. Many households had saved during the pandemic, which has now prompted them to dig in their pandemic savings.

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Experts suggest that figures for the first quarter of 2022 may not be as promising. Recently, the ABS also released data on business investment for the March quarter, which showed a drop of 0.9% from the previous quarter. Overall, this slowdown could most probably reflect in the March quarter GDP as well. However, the middle six months of 2022 could show a better picture, with the situation slightly improving.

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