GDP growth in December quarter falls shy of forecasts

The economy grew by less than expected in the December quarter, with export weakness offsetting stronger consumer spending.

Containers being loaded at Melbourne’s port.

The economy grew by less than expected in the final quarter of 2017, with weakness in exports eroding some of the boost from stronger consumer spending.

GDP grew by 0.4 per cent in the fourth quarter from the third and 2.4 per cent from a year earlier, government data showed Wednesday.

Economists had expected 0.5 per cent growth on quarter and 2.5 per cent on year.

Government spending was a solid contributor to growth with the federal and state governments embarking on large infrastructure projects, including road networks and transport hubs.

Consumer spending improved, rebounding from a weak third quarter with help from demand for Apple Inc’s iPhone X and pre-Christmas sales. There also remains a strong pipeline of residential construction, especially in apartments, that is also supporting growth and employment creation.

Non-mining investment is growing as the economy slowly shrugs off years of a big decline in resources investment when a once-in-a-hundred year boom began to subside.

Some weakness in exports, which was largely weather related, and a rise in import volumes slowed GDP growth in the quarter, with net exports subtracting 0.4 percentage points from the outcome.

Still, the outlook remains uncertain, with a cloud still hanging on consumers.

Record household debt and stagnant wages growth is creating a lot of concern around consumers, with the Reserve Bank of Australia signalling a willingness to keep interest rates at record lows until there is some improvement around incomes.

Consumption accounts for a huge amount of the economy, and if it stalls, it could push the economy into a hole.

In a speech to a business forum ahead of the data, RBA Gov. Philip Lowe said he thought the economy was on the right track, but strong inflation, growth, and lower unemployment will take time to emerge.

“Our assessment is that the economy is moving in the right direction. We expect stronger growth in 2018 than in 2017 and a further reduction in the unemployment rate. We also expect inflation to increase a little from its current low rate,” Mr Lowe said.

With the economy moving in the right direction, and interest rates still quite low, “it is likely that the next move in interest rates in Australia will be up, not down,” he added.

Within Wednesday’s data, wages growth was solid. The so-called compensation of employees recorded growth of 1.1 per cent in the fourth quarter and 4.8 per cent growth on year. That was the strongest annual rate of expansion since mid-2012.

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