Despite a lower than expected GDP number last week, we need to remember that this data is backward-looking and almost two months old. The data does confirm an economy where many households and businesses are doing it tough, as mining investment peaks out and the signs of an upturn outside of mining are scarce.
However, even if growth in Australia is below trend, we’re not doing too badly by international standards – the Eurozone went backwards in the latest quarter by 0.2%, the US annualised rate was in line with us at 2.4% and Japan grew by 0.9% in the March quarter (although that was recorded after the country’s growth rate went backwards over the past three quarters).
The key point for the Reserve Bank of Australia (RBA) to take away would have been that this GDP number ratifies the decision to cut rates in May.
The weaker than expected data last week plus a lower (albeit volatile) Australian Dollar has seen financial markets increase the magnitude of expected rate cuts over the next 12 months. This is despite the Reserve Bank leaving the official cash rate unchanged at their regular monthly Board meeting last week.