Soft start to year for growth then robust expansion

A jump in demand for imported goods could flatten economic growth through the first three months of the year, economists say.

Analysts are confident solid domestic demand will drive robust growth through the rest of the year.

A jump in demand for imported goods could flatten economic growth through the first three months of the year, economists say, compounded by the hit to ­activity from the Omicron outbreak and the devastating east coast floods.

A stalling economy through the March quarter would confirm Australia’s jagged upward economic trajectory out of the pandemic, following a blockbuster 3.4 per cent jump in real GDP at the end of last year as NSW and Victoria emerged from lengthy Delta lockdowns.

Analysts were confident that solid domestic demand would drive robust growth through the rest of the year.

AMP Capital Investors chief economist Shane Oliver predicted net exports would slash 1.8 percentage points off real GDP in Wednesday’s national accounts.

Despite soaring commodity values, bad weather and production disruptions are expected to depress resource export volumes over the quarter, economists said. In contrast, import volumes were anticipated to push firmly higher – reflecting solid domestic demand from consumers and businesses.

That result could stall growth through the most recent quarter, Dr Oliver said, and slow annual growth from 4.2 per cent in December to 2.3 per cent.

With retail spending at record highs and business investment remaining solid, Dr Oliver said “you only need to look beneath the surface to see the domestic strength”, predicting the economy would expand by a robust 4 per cent in 2022.

NAB economists forecast real GDP growth would inch 0.1 per cent higher in the quarter, “with imports weighing on growth ­despite ongoing strength in ­consumption”.

NAB chief economist Alan Oster said the large swings in export and import prices made forecasting difficult, and “a larger-than-expected impact could temporarily push GDP into negative territory, despite the sound domestic fundamentals”.

Differing assessments on the potential drag from net exports left a wide range of forecasts, with the consensus of 0.6 per cent suggesting annual growth would reach 3.6 per cent.

“Consumption should lift further in the coming quarter as Omicron and flood disruptions pass before beginning to normalise later in the year,” Mr Oster said.

Treasury has estimated the floods would cut 0.5 per cent off real GDP in the March quarter.

The spectre of an economic contraction over the first months of 2022 would echo the experience of the US, where ­surging imports drove real GDP lower in the March quarter, despite solid domestic fundamentals.

Just as the US Federal Reserve has remained committed to tightening monetary policy, economists anticipate that a soft quarter of growth will not derail a Reserve Bank of Australia rate hike next Tuesday.

Dr Oliver said he expected that, out of the politically charged pre-election atmosphere, the RBA would follow the 0.25 percentage point increase at the ­central bank’s May meeting with a super-sized 0.4 percentage ­increase next week, bringing the cash rate target to 0.75 per cent.

“They will probably want to signal they are serious about keeping inflation expectations under control,” he said.

Dr Oliver anticipated rates to reach between 1.5 and 2 per cent by the end of the year.

CoreLogic figures suggest Sydney home prices will fall by about 1 per cent in May, and by about 0.6 per cent in Melbourne, Dr Oliver said, suggesting the pace of rate increases could be slower as falling home values would drag on household confidence. “I have been expecting a 10-15 per cent fall in property prices over 18 months, but prices are starting to slow a bit faster than I thought,” he said.