Australia GDP Strong, But Not Convincing Enough

Market Trends - 01/06/2016

First quarter economic results in Australia grew at their fastest pace this year, rising 1.10% on the quarter and 3.10% on the year. While the headline GDP growth numbers eased back worries of slowing growth, the finer details however have left many economists wondering if the pace of growth can be sustained. Expectations of a stronger GDP growth were stoked after yesterday's quarterly trade balance data, but foreign debt also increased, rising above $1 trillion and 1.00% over the quarter.

While trade volumes increased on larger infrastructure investments, prices failed to keep pace. The terms of trade, which is a ratio of export prices to import prices fell by -1.90% to its lowest level since 2008's global financial crisis. Economists welcomed the deficit but warned that over the medium term export volumes need to rise in order for growth to be sustained. For the moment however, with a better headline print the Reserve Bank of Australia is most likely to stand pat on policy, giving some respite to the AUD's decline over the past weeks. The RBA meeting within the next week will be the deciding factor on the policy horizon.


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