Economic growth in Australia decelerated during the first quarter, according to data released on Wednesday, as strong business investment was offset by a drag from trade, while rising borrowing costs and petrol prices restrained consumer demand.
This slowdown is likely to intensify, with household spending declining, property prices stagnating, and unemployment rising modestly due to conflicts in the Middle East and successive policy tightening measures.
"The headline number was soft, but the details were even more grim," stated Sunny Nguyen, Australia Economics Director at Moody's Analytics.
"Public demand failed to provide a cushion for the economy, cyclone-affected exports made net trade a heavy drag, and discretionary spending stalled as pressures on households to tighten their belts began to show."
Data from the Australian Bureau of Statistics showed real gross domestic product grew by 0.3% in the first quarter compared to the previous quarter, slowing from a 0.9% increase in the final quarter of last year. Market expectations were for a 0.5% expansion, with risks tilted to the downside.
The year-on-year growth rate for real GDP held steady at 2.5%. The Reserve Bank of Australia, which believes the economy should not expand significantly faster than 2% to avoid fueling inflation, has raised interest rates three times this year, bringing the cash rate to 4.35%.
The slowdown was partly attributed to record-high imports of automatic data processing equipment for data centers, with net trade subtracting 0.8 percentage points from GDP. Exports fell by 1.1%, the largest quarterly drop in two years, due to weather-related disruptions to coal and iron ore shipments.
The mixed first-quarter data did not alter the policy outlook. The RBA anticipates economic growth will slow further to 1.9% in the second quarter and ease to 1.3% by year-end.
The Australian dollar held steady against the U.S. dollar at $0.7178, while three-year government bond futures maintained earlier losses at 95.44.
Interest rate swap markets currently indicate a 7% probability of a fourth RBA rate hike in June, with the chance of an increase in August standing at 50%. For the remainder of the year, markets are pricing in a total of 23 basis points worth of additional tightening.
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