Australian Q1 2011 GDP release, reported the largest quarterly contraction of 1.2%. Farm GDP declined by 10%, while non-farm GDP declined 1% on a quarter-to-quarter basis. “Flooding, which began in late December 2010 combined with cyclones in both Queensland and Western Australia have had a significant impact on the March quarter activity,” according to the Australian Bureau of Statistics (ABS).
Chart.1 GDP Growth Slows in Q1 2011
Farm GDP has declined for second consecutive quarters. Non-farm GDP similar to overall GDP has fallen inQ1 2011. Chart.2 shows the contribution to the GDP growth rate of various GDP categories.
Chart.2 Australian GDP Contributions
“Net exports were the largest negative contributor. On the expenditure side, the decline this quarter (in seasonally adjusted volume terms) was driven by Net exports (detracting 2.4 percentage points) and Changes in inventories (detracting 0.5 percentage points). Partially offsetting these falls were Private gross fixed capital formation (adding 0.7 percentage points), Household final consumption expenditure (adding 0.3 percentage points) and Government final consumption expenditure (adding 0.2 percentage points)”, reports the ABS.
Chart.3 shows that the growth rate has begun to slow
Chart.3 shows that GDP growth on an annual basis has decelerated since peaking in June 2010. Non-farm GDP growth more closely correlated to overall GDP growth has been a significant contributor to the slow down in economic expansion. Conversely, the more volatile farm GDP has been growing at faster rate, albeit showing tentative signs of peaking.
Chart.4 Private Residential Investment growth Stalling
Pace of growth in private residential investment is slowing. This deceleration in private residential investment could be a result of house price growth easing. Chart.5 reports the quarterly and annual house price inflation. House prices declined by 1.4% from 2010 Q2 levels. The eight capital cities average house price index increased by 0.7% from Q1 2011. However, the capital cities average house price index is 1.7% lower in June 2011 when compared to June 2010.
Chart.5 Australian House Price Inflation
General economic activity appears to have slowed in the recent quarters. ABS suggests that the hurricane and cyclone in late December are still influencing the data. In addition, signs that global economic activity is waning have emerged. On one hand, this will dampen demand for houses, but may also result in an improvement in affordability via lower interest rates. Strong domestic demand will be an important factor in cushioning the economy against a fall in exports as global demand weakens. In its latest meeting, the Reserve Bank of Australia maintained cash rate at 4.75% and cited the deceleration in the pace of global economic growth as a factor.