Australia Remains Steadfast in Nearly 2-Year Growth

Australia has sustained their growth in nearly two years in the previous quarter, sustaining 27 years without a recession.

The Gross domestic product (GDP) increase by 1 percent in the first three months of the year, improving by 0.5 percent since the last quarter last year. Meanwhile, the annual growth rose to 3.1 percent compared to the 2.4 percent in December.

It has been over a year when the economy ran at the fastest rate, which is in the second quarter of 2016.

The latest result exceeded the forecast quarterly growth of 0.9 percent and 2.8 percent on-year, according to the data published on Wednesday, which in turn push the local dollar to almost six-week high at $0.7665.

Higher demand for exports, business investment, and government expenditures drove the economic growth in the first quarter with the outlook pessimistic due to households hesitancy to spend.

A Sydney-based senior economist of RBC Capital Markets, Su-lin Ong, said, “It was a pretty lackluster quarter for expenditure.” He pointed out the significance of such for growth.

Household consumption measured 57 percent of gross domestic product (GDP), raising just 0.2 percentage point on the economic growth in the quarter. Most of the household expenditures were spent on transport, insurance, healthcare and utilities and oppositely, spending on alcoholic drinks, cigarettes and dining out declined based on the data.

Meanwhile, real net national disposable income rose by 2.5 percent over the year, but the equivalent growth per person is just below 1 percent.

The savings ratio dropped to 2.1 percent from 2.3 percent in the last month of 2017.

With the slow growth of the wages in Australia, Australian consumers face a mountain of debt and high unemployment rate recorded to be 5.5 percent. Hence, economists expected the consumer spending to be subdued.

Although, they are still worried if the consumption remains weak amid the subdued real income growth and the weakening housing market, according to the Paul Dales, a Sydney-based chief economist at Capital Economics.

For the past few months since late last years, house prices continue to decline as banks tightened their policies that have a big impact on the consumer confidence in the background of negative news revolving around their business procedures.

Discussing the inquiry on banking misconduct spearheaded by the government, Dales said that the central bank of Australia is less likely to raise their interest rates in 2017 or 2018 the most amid the string inflation hike and improbable action of the Royal Commission on future lending conditions.