A strong rebound in Australian exports last quarter has helped fill a hole left by slumping business investment in the economy, adding to the case for the central bank to keep its powder dry at its policy meeting next week.
Net exports alone likely added a whopping 1.1 percentage points growth to Australia’s $1.2 trillion gross domestic product (GDP). First quarter GDP is due on Wednesday.
The figures from the Bureau of Statistics on Tuesday blew away forecasts for net exports to add 0.7 percentage points to growth. Export volumes jumped 4.4 per cent while imports slipped 0.8 per cent.
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Separately, building approvals for April rose 3.0 per cent, confounding forecasts for a 3.0 per cent fall.
The upbeat data shook the market’s expectations for another cut in interest rates this year and sent the Australian dollar rallying more than half a US cent to a high of A$0.7240 .
“We see an even stronger case for rates to be on hold at 1.75 per cent in June and July, awaiting the July 2 election and Q2 consumer price index report on 27 July,” said Annette Beacher, chief strategist at TD Securities.
The healthy growth figures give the Reserve Bank of Australia (RBA) room to wait to see whether inflation picks up before deciding if another rate cut is needed.
Earlier this month, the RBA reduced the cash rate to a record low 1.75 per cent, citing disturbingly low inflation. Investors are now giving a mere 6 per cent chance of a follow-up cut next Tuesday from about a 75 per cent chance just after the May cut.
Other data out on Tuesday showed the country’s current account deficit narrowed 8 per cent to A$20.8 billion in the quarter, while government investment rose 0.7 per cent.
That leaves the current median forecast for a 0.6 per cent increase in first quarter GDP, and for annual growth to cool to a below-potential 2.6 per cent, looking slightly pessimistic.
“There is quite a bit of upside risk to GDP. We’re going to end up with growth well and truly above anything we’ve seen in the US, Japan and Europe,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital.
Analysts at Westpac revised their forecast for first quarter GDP growth to 0.7 per cent, from 0.6 per cent previously. JP Morgan lifted their forecast to 0.9 per cent, from 0.7 per cent.