Economic growth may be faster than consensus forecasts
SYDNEY: Australian companies doled out a record amount in salaries last quarter, providing support for a struggling consumer sector while a jump in profits pointed to economic growth gathering pace after last year’s slowdown.
Stronger-than-expected data released yesterday suggested first-quarter economic growth might be faster than current consensus forecasts, sending the Australian dollar up a third of a US cent to the day’s high of $0.7615.
The gross domestic product (GDP) report due tomorrow is expected to show domestic output rose 0.8% in the first quarter, according to a Reuters poll of economists. That would take annual growth to 2.7%, still below government and central bank forecasts of a 3% increase.
Australia’s A$1.8 trillion (US$1.37 trillion) economy has now entered its 27th straight year of growth but analysts see headwinds from the household and property sectors.
“We still expect Australian growth in 2018 to be a little below the Reserve Bank of Australia’s (RBA) forecast because of a constrained consumer and a slowing housing market,” said Diana Mousina, senior economist at AMP Capital.
“There are few signs of noticeable cost pressures as the economy is still running below its capacity,” Mousina added.
“Growth needs to be stronger to work through this spare capacity and lift wages and inflation.”
Australia’s centre-right government has recently committed to expensive education and health programmes and cuts to personal income tax to win over struggling households as elections loom.
The mix of moderate growth and restrained wages poses a political challenge for Prime Minister Malcolm Turnbull, and is a major reason the RBA is expected to keep interest rates at a record low 1.5% at its June meeting today.
Interest rates have been on hold since August 2016, marking the longest period of unchanged policy since the cash rate was introduced in 1990. The futures market is not fully pricing in a hike until September next year.
Yesterday’s figures from the Australian Bureau of Statistics showed company gross operating profits climbed 5.9% to a record in the March quarter, beating expectations for a 3% increase.
Mining, construction, utility and recreation enjoyed hefty increases while financial services recorded the biggest fall.
Another bright spot in yesterday’s data was stronger-than-expected business inventories, which climbed 0.7% in the March quarter compared with expectations of 0.1% rise.
The solid performance allowed companies to hire more, inflating their wage bill to a record A$135.5bil (US$103bil) in the March quarter, up 0.8% on the previous quarter and 5% higher than a year ago.
The appetite for labour also showed few signs of diminishing, with job ads holding near a seven-year peak.
A survey by Australia and New Zealand Banking Group yesterday showed weekly job ads in newspapers and on the Internet up a brisk 11.5% in May from a year ago.
Yet, companies are still reluctant to reward pay hikes with annual wage growth crawling at around 2%, its slowest pace ever.
That has weighed on consumer spending with the household debt-to-income ratio hold near all-time highs of around 190%. — Reuters
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