Australia's great recession-free run on shaky ground

SYDNEY • Weak signals from Australia are forcing economists to revisit their first-quarter growth forecasts. Some are even suggesting a contraction.

Home building, net exports and household consumption could be a drag on gross domestic product (GDP) for the first three months of this year, according to some estimates.

A negative print would raise the spectre of recession, especially as a cyclone that ripped through Queensland's key coal mining region is tipped to subtract from growth in the three months to June.

Sluggish data "all points to growth being only marginally positive at this stage and there's certainly the risk of a negative quarter," said Mr Shane Oliver, chief economist at AMP, who now expects first-quarter GDP growth of around 0.2 per cent rather than the 0.5 to 0.6 per cent he previously forecast.

Australia's enviable track record in avoiding two straight quarters of contraction since 1991 is on shaky ground. While the economy grew a solid 1.1 per cent in the final three months of last year, it was rebounding from a shock 0.5 per cent decline. Australia & New Zealand Banking Group last week said growth could be just 0.1 per cent in the first quarter of this year. That would be an annual rate of 1.5 per cent, the lowest since 2009.

While the Reserve Bank of Australia has said holding its benchmark interest rate at a record low 1.5 per cent since September is appropriate for "sustainable growth" and meeting its inflation target, a soft GDP number will not go unnoticed. 

Mr Oliver says anaemic growth in the first half means the risks are still to the downside for borrowing costs, even if the market sees about a 20 per cent chance of a cut this year.

A weak number would likely cast further doubt on the government's growth forecasts, delivered in its annual Budget this month, as Prime Minister Malcolm Turnbull's ruling coalition struggles in the polls.

The Treasury is forecasting GDP growth of 1.75 per cent in the 12 months to June, accelerating to 3 per cent by fiscal 2019.

"We've long held the view that sub-trend growth is likely to persist. This idea of a return back to 3 per cent-plus growth looks a little ambitious at this stage," said Ms Ong Su-Lin, senior economist at Royal Bank of Canada.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 30, 2017, with the headline 'Australia's great recession-free run on shaky ground'. Print Edition | Subscribe