Forecasters have revised down their predictions for Australia’s economic growth, which could show the weakest start to a year in decades, outside of COVID.
Partial indicators released in recent days have diminished optimism of the economy’s vitality before the Australian Bureau of Statistics releases national accounts figures on Wednesday.
The anticipated economic recovery driven by falling interest rates, moderating inflation and recovering disposable income has not materialised as expected.
New public demand declined 0.4 per cent over the quarter and will shave 0.1 percentage points off GDP growth in March, the ABS reported on Tuesday.
Alongside weaker than expected household spending, business investment and mining exploration, Westpac pared back its prediction for GDP growth to 0.1 per cent – the slowest March quarter result, outside of COVID, since the 1990/91 recession.
That would put the annual growth rate at 1.2 per cent.
Westpac economists said there was even a small risk for a minor decline in output over the quarter.
Negative effects from Tropical Cyclone Alfred and flooding in Queensland as well as a slowdown in public demand highlighted the downside risks to growth.
“While some of the weakness reflects the direct and indirect (or ‘confidence’-related) impacts of the bad weather events, it is undoubtedly the case that underlying growth remains sluggish,” they said.
“Without a pickup in private demand, the shaky handover from the public sector could result in a period of below par economic growth.”
While the figures won’t show the worst effects of global uncertainty on consumer demand, given Donald Trump’s main tariff announcement wasn’t until April 2, trade barriers will continue to weigh on economic growth into the future.
The Organisation for Economic Cooperation and Development downgraded its forecast for Australia’s GDP growth from 1.9 per cent to 1.8 per cent in 2025.
But the outlook is rosier in 2025, with economic growth expected to accelerate to 2.2 per cent as interest rates continue to fall and disposable incomes recover.
Treasurer Jim Chalmers said the national accounts would show an Australian economy resilient in the face of substantial headwinds at home and abroad.
“Our economy has been hit by natural disasters and we’re not immune to global volatility, but the progress Australians have made together means we are well placed and well prepared to face this uncertainty,” he said.
CBA economists also downgraded their Mach quarter GDP forecasts following Tuesday’s data dump but still expect growth of 0.3 per cent, while ANZ and NAB revised down their predictions to a 0.2 per cent rise.
JP Morgan left its growth prediction unchanged at 0.3 per cent while Japanese investment bank Nomura lowered its estimate to 0.1 per cent.
It’s unlikely GDP growth will meet the Reserve Bank’s forecast of 0.5 per cent, published just over two weeks ago in its May Statement on Monetary Policy.
Rates markets imply a 78 per cent chance for the RBA to cut interest rates by another 25 basis points at its next meeting in July, with two more cuts expected by Christmas.
Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national newswire and has been delivering accurate, reliable and fast news content to the media industry, government and corporate sector for 85 years. We keep Australia informed.
