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Mixed bag economy shrugs off floods and Covid but inflation lurks

The Australian economy is back on its pre-Covid trajectory with solid growth of 0.8 per cent for the March quarter, or 3.3 per cent for 12 months.

Jun 01, 2022, updated Jun 01, 2022
Treasurer Jim Chalmers. (AAP Image/Lukas Coch)

Treasurer Jim Chalmers. (AAP Image/Lukas Coch)

While the GDP figures marked a slower economy compared with the thumping post-lockdown growth of 3.6 per cent in the December quarter, it was above the expectations of many in the market who had tipped a rate of about 0.5 per cent.

The data also showed continued strong consumer demand, despite inflation. Equipment investment was also strong as was public (government) spending.

That’s the good news. The bad news is that it could mean the Reserve Bank will hike its cash rates next week when its board meets. The market expectation is for an increase of 40 basis points (0.4 per cent).

The data that the RBA would be most concerned about was inflation, measured by the implicit price deflator, which increased by 2.9 per cent, the fastest growth since 1990.

ANZ said stronger than expected wages growth would force the RBA to act. It has raised its forecast from a 25 basis point increase in the cash rate to 40 basis points.

Treasurer Jim Chalmers said GDP was robust and resilient in parts but well below the forecasts in the Morrison government’s Budget.

He said there were serious constraints on the economy, including cost of living pressures and energy prices.

“These national accounts are a glimpse of the mess the former Government left behind for us to clean up,” Chalmers said.

“You can see in these figures, even where the number on the surface looks relatively robust, is much lower in many instances.”

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“There is no point tiptoeing around these serious economic challenges.”

Queensland’s economy grew 0.8 per cent for the quarter, well below other states, because of the impact of the floods and Omicron.

Chief economist at IFM Investors Alex Joiner said household pressures were evident and Australia needed ongoing consumer strength and further improvements in investment to maintain growth.

Managing director EQ Economics Warren Hogan said Australian was almost back to the pre-pandemic growth path for consumer spending.

 

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