Key points from the AMP Capital team in Sydney:
- Australia's economic growth remained modest in the final quarter of 2014 with the economy expanding by +0.5%.This is only a marginal acceleration of the previous quarter’s +0.4% growth rate. This accords with the RBA’s March meeting statement that Australia’s “growth is continuing at a below trend pace”.
- There were some positives in the December quarter GDP report. Consumer spending was solid (+0.8%) with the household saving ratio remain elevated at 9.0%.
- Housing construction is robust (+2.5%). There was sharp positive GDP contribution from Net Exports (+0.7% to GDP) given solid exports (+1.0%) outweighing the sharp fall in imports (-2.5%). This import slump reflects the end of the mining investment boom curtailing capital imports.
- However business investment was weak (-0.4%) given the mining downturn while inventories fell sharply (-0.6% percentage point contribution), indicating a degree of caution in the corporate sector. Notably public spending was flat (+0.1) given the Federal Budget’s fiscal consolidation.
- Australia's real economic growth for the past year now stands at a modest 2.5%. This growth rate is well below the past 20 year average of 3.3% and below the 2.8% average for last 10 years. So the Australian economy is recording a “below trend” performance with accompanying mild inflation pressure and a gradually rising unemployment rate.
- Given this sub par economic performance , the December quarter GDP result will only reinforce the case for a further easing in monetary policy. We expect the RBA will cut the official cash interest rate by a further 0.25% to 2.0 % in April or May.