Australia's economy held up well in Q1, more growth ahead & More News Here

Containers are piled up at Port Botany services in Sydney Australia, February 6, 2018. Picture taken February 6, 2018. REUTERS/Daniel Munoz

SYDNEY, June 1 (Reuters) – Australia’s economy held up higher than anticipated in the primary quarter as sturdy home demand offset the drag from dismal climate and a flood of imports, setting the scene for more inflation-fighting hikes in rates of interest.

Data from the Australian Bureau of Statistics out on Wednesday confirmed gross home product (GDP) rose 0.8% in the March quarter from the earlier quarter, topping market forecasts of a 0.5% acquire.

Annual growth ticked right down to a still-solid 3.3%, after a barn-storming 4.4% in the December quarter, and most analysts count on that to speed up once more as cashed-up shoppers appear glad to maintain spending.

“It supports our view that the economy will hold up better in the face of rising interest rates and falling real incomes than most anticipate,” mentioned Marcel Thieliant, a senior economist at Capital Economics.

“With the drag from net trade reversing and the reopening of the economy driving another marked rise in consumption, we have penciled in a stronger 1.5% q/q rise in Q2 GDP.”

Household consumption alone had added 0.8 proportion factors to growth in the primary quarter, whereas authorities spending and inventories additionally made sizeable contributions. A piece of that demand was met by imports, taking 1.5 proportion factors off GDP.

Consumers nonetheless have cash to spend with the family financial savings ratio dipping solely modestly to 11.4%, well above pre-pandemic ranges.

INFLATION DRIVES RATE HIKES

Consumer resilience is a significant cause the Reserve Bank of Australia (RBA) felt assured sufficient to carry rates of interest to 0.35% in May, and to flag more hikes ahead.

Markets are totally priced for an additional transfer to 0.6% on the RBA’s June coverage assembly subsequent week, and indicate charges may even attain 2.5% by year-end given the pressing want to chill red-hot inflation.

Inflation was evident all through the GDP report with its important value index rising 2.9% for the quarter, the most important improve since early 1988.

Compensation of workers, a proxy for wages, confirmed one other massive acquire as companies paid more to draw and retain workers.

Yet the carry in costs additionally led to stronger nominal GDP, which surged 3.75% in the quarter and a heady 10.2% for the 12 months taking output to A$2.2 trillion ($1.58 trillion).

Australia’s phrases of commerce jumped 5.9% to a file courtesy of lofty costs for its key commodity exports, which in flip showered the mining sector with windfall income.

Combined, that was an enormous enhance to tax revenues and a much-needed boon to the newly put in Labor authorities because it wrestles with protracted price range deficits.

Treasurer Jim Chalmers, having promised throughout the election to not increase taxes, has already warned spending should be trimmed if authorities debt is to be restrained.

($1 = 1.3922 Australian {dollars})

Reporting by Wayne Cole; Editing by Christopher Cushing and Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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