Thankfully they have heeded recent economic data that shows our economy is far from healthy. A strong Australian dollar is battering our exporters. A rate rise to curb inflation would have just been a dumb idea.
Please leave a comment about this news. I am flabbergasted that the RBA was even considering a rate rise, given Australia’s current sluggish economy.
Australia’s economy has suffered its biggest quarterly contraction since the recession of the early 1990s.
The Bureau of Statistics national gross domestic product (GDP) figure fell a steep 1.2 per cent in the March quarter, largely as a result of the flood impact on Queensland coal exports.
The fall is larger than the 0.9 per cent contraction at the height of the financial crisis in late 2008, and is the worst result since the March quarter of 1991, when the economy shrank 1.3 per cent.
Forecasts for the March quarter ranged between a fall of 0.2 per cent and a slump of 2 per cent in a survey of 25 financial institution economists by Bloomberg.
The median forecast centred on a steep fall in GDP of 1.1 per cent, putting it close to the actual result.
Analysts had substantially lowered their forecasts after yesterday’s quarterly trade figures came in much worse than previously expected, and wiped 2.4 percentage points off Australia’s economic growth.
Before yesterday’s figures, most economists had been expecting a GDP fall in the range of just 0.3 per cent, although Treasury had warned that a fall of 1 per cent or more was possible.
‘One-off fall’
The ABS says flooding over summer had a significant impact on the result, due to a fall in the volume of minerals mined.
That is reflected in a 6.1 per cent fall in the mining sector, which was the biggest industry detractor from the economy in the March quarter, taking 0.6 percentage points off economic growth.
Manufacturing fell 2.4 per cent and Agriculture was down 8.9 per cent, both of which detracted 0.2 percentage points from GDP.
One bright spot in the figures was a rise in private capital formation, an area that covers investments by companies to increase future levels of production.
RBC Capital Markets strategist Michael Turner says the detail of the data indicates it should be a one-off fall in GDP.
“Consumption was the big surprise, business investment also looks pretty strong as well,” he told Reuters.
“The main takeaway is that consumption is still ticking along pretty well – I know retail is soft, but there are other parts of consumption that are doing pretty well.
“It will certainly encourage them [the RBA] that they have not tightened too much.”
Commsec’s chief economist Craig James says it is unlikely that the economy will contract again in the current June quarter, meaning Australia should avoid a technical recession.
However, he says the economy is still showing many signs of weakness.
“As always, we shouldn’t put too much emphasis on one quarter’s figures, especially as the March quarter result was so significantly weather affected,” he wrote in his initial analysis of the data.
“But it’s worth noting that the economy recorded no growth back in the September quarter before lifting 0.8 per cent in the December quarter and then going backwards by 1.2 per cent in the latest quarter.”
The Australian dollar jumped around half-a-cent on the data, from 106.72 to 107.18 US cents, as some of the worst analyst predictions of falls between 1.5 to 2 per cent did not come to pass.
The Australian economy grew at a modest 1 per cent in the year to March.
State by state
The figures for state final demand, which exclude the contribution of exports or imports, are the best ABS estimates available for economic growth across the different states and territories.
However, the exclusion of exports and imports obviously changes the figures dramatically from the national numbers, where trade figures wiped 2.4 percentage points off growth.
Data limitations aside, the figures provide a glimpse into the relative health of different state and territory economies.
Western Australia and the ACT had the strongest growth in state final demand of 3.2 and 3.3 per cent respectively in the March quarter, seasonally adjusted.
However, the ACT’s figures are prone to more volatility and revision because of the smaller size of its economy.
Tasmania grew 1.7 per cent, Victoria 1.6 per cent, and New South Wales state final demand expanded 0.4 per cent.
The figures show state final demand in Queensland contracted by 0.6 per cent in the March quarter, while South Australia’s economy fell 0.8 per cent, and the Northern Territory’s economy shrank 0.7 per cent.
