By Wayne Cole
SYDNEY (Reuters) – Australia’s economy looks like it came close to stalling last quarter as trade shaved more from growth than expected, though strength in government spending may just have been enough to underpin overall output.
Figures on gross domestic product (GDP) are due on Wednesday and a run of soft numbers from consumption to housing have led analysts to downgrade forecasts of growth to near nothing.
The news comes as the Reserve Bank of Australia (RBA) holds its March policy meeting amid rising speculation it might have to bite the bullet and cut interest rates in coming months.
Tuesday’s data from the Australian Bureau of Statistics (ABS) showed net exports trimmed 0.2 percentage points from GDP, double that expected by analysts.
The drag came even as the country’s current account shrank sharply to a smaller-than-expected A$7.2 billion ($5.10 billion)since export receipts were boosted by higher prices rather than increased volumes.
A saving grace came from government spending which added a bit more than 0.3 percentage points to GDP in the quarter.
Public spending accounts for almost 24 percent of Australia’s A$1.8 trillion in annual gross domestic product (GDP) and a much-needed binge on infrastructure is proving a crucial supporter of growth across the economy.
The Liberal National government also faces a tough election in May and is widely expected to entice voters with tax cuts and more spending in its annual budget on April 2.
Such largesse would be well timed given analysts suspect the economy expanded by a sub-par 0.4 percent in the December quarter, with risks on the downside.
Annual growth is seen slowing to around 2.6 percent, from 2.8 percent, making the RBA’s call for 3 percent this year look increasingly optimistic.
Australia is hardly alone in its troubles with much of the world hitting an economic air pocket over the turn of the year, partly in reaction to the Sino-U.S. trade tussle.
The RBA has already dropped an implicit tightening bias and warned that a further significant fall in home prices could undermine household wealth and spending.
The housing market will be the topic of a speech by RBA Governor Philip Lowe on Wednesday. So far, he has played down the damage done by the fall in home values, noting that it comes after a decade of booming prices.
However, he has conceded that were the labor market take a turn for the worse and unemployment start to rise, then an easing in the 1.5 percent cash rate might be contemplated.
Investors are well ahead of the bank, with futures implying around an 80 percent probability of a quarter-point cut in rates by year end.
“We think rate cuts this year, while not guaranteed, are now more likely than not,” said Nomura economist Andrew Ticehurst.
“At heart is a weaker regional and global growth environment, which comes at a poor time for Australia, given the local dynamics of a ‘stretched’ consumer.”
He is tipping a cut in both July and August, taking rates to a new all time low of 1 percent.
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Source: Investing.com
