Following on from a very disappointing 4Q real GDP print, we were hoping that 1Q would look much better, if only on the back of favourable comparables.
However, the data has not evolved this way. We note that in 1Q:
Retail sales have grown anaemically. January sales rose by a modest 0.1%, with high frequency card spending data pointing to another moderate increase in February of around 0.3%.
Business confidence plummeted to zero in March, with capex intentions dipping to +3 – the lowest level since 2014. The non-mining capex recovery appears to have been interrupted. Capacity utilization ticked slightly higher to 81% from 80.9%, but still remains well below 4Q levels, consistent with sub-potential growth throughout the quarter. Labour cost inflation has slowed markedly in recent quarters, consistent with slower employment growth and diminished wage bargaining power.
Iron ore and coal export volumes have weakened sharply in March, with negligible growth throughout the Chinese new year period. Cyclone damage has limited supply. It now appears that iron ore and coal export volumes only expanded by 2.7% in 1Q. But the national accounts exports numbers never really fell as rapidly as resources export volumes would have suggested. Therefore, it stands to reason that they may not rise as much in 1Q either. Net exports may not have saved 1Q GDP.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
