ABS current account: Weaker GDP growth expected after current account swings into deficit

Soaring imports of consumer goods such as clothing, footwear and medicines, along with falling prices of key commodities including coal and iron ore, may have caused the Australian economy to contract in the March quarter.

Australia’s current account plunged into a $4.9 billion deficit in the first three months of 2024, much weaker than the expected $5.1 billion surplus.

Over the course of the quarter, goods export volumes declined, reflecting reduced local coal and iron ore production; however, this was more than offset by an increase in healthy import volumes, driven by a strong replenishment of inventories of consumer goods.

Meanwhile, services exports increased in the March quarter as increased tourism was partly offset by falling numbers of international students. However, as Australians shun international holidays, services imports have been weak.

Due to falling commodity prices for Australia’s exports of iron ore and coal, coupled with falling petrol prices on the import side, Australia’s terms of trade have increased slightly.

As a result, net exports slumped to $17.8 billion, with the decline expected to shave 0.9 percentage points off Wednesday’s March quarter GDP reading, worse than the 0.6 reduction analysts expected .

Separate data released Tuesday also showed that inventories rose as companies stocked up more than expected during the quarter.

“Some of this weakness will be offset by a rise in inventories,” said Sean Langcake of Oxford Economics Australia.

“But (net exports) will drive a weaker-than-expected growth outcome in the March quarter.”

Following the new data, economists will refine their forecasts for the March quarter national accounts data to be released on Wednesday.

On the back of weakening consumer spending and falling construction activity, data is expected to show the economy expanded by an anemic 0.2% in the three months to March, unchanged from the December quarter reading .

An outcome in line with consensus forecasts would be a slowdown in annual growth from 1.5% to 1.2%, well below projected population growth of 2.5% and would mark a worsening of Australia’s per capita recession for the fourth consecutive quarter.

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