A better-than-expected turnout for Q4 GDP was largely a function of strong consumer spending. Business spending, now negative in three out of four quarters for 2015, was—once again—a drag on headline growth.
How Long can Consumers Fuel Growth?
- The Australian economy grew 0.6 percent in the fourth quarter which represents an annualized growth rate of 2.6 percent.
- Australia faced many key pressures in 2015, not the least of which was diminished demand for its commodities exports.
- After years of robust growth in Australia’s once-booming mining industry, softer demand has been holding back business fixed investment spending.
- Consumer spending has been remarkably resilient in Australia and that was certainly the case in the fourth quarter as consumer outlays grew at an annualized rate of 3.1 percent.
- It is not clear how long consumers can play this role, however. Labor market reports have been hit and miss in recent months, with the unemployment rate climbing to 6.0 percent in January after boasting a 5-handle for the last two months of 2015.
Implications for RBA and Monetary Policy
In its February monetary policy statement released earlier this week, the Reserve Bank of Australia (RBA) cited the divergent paths of other central banks in terms of monetary policy as part of a broad justification to remain on hold.
Read the complete commentary here: australia-gdp-q4-20160302