Australia’s net trade will subtract ~0.8ppt from Q1 GDP as data centre and fuel imports surged and commodity exports fell, with government spending flat and the current account deficit wider than forecast. Trade in goods and services fell into deficit for the first time since the December quarter of 2017, as mining commodity exports declined and imports surged on two fronts: fuel, reflecting the global energy shock from the Hormuz closure, and data centre equipment, where imports hit historic highs driven by bulk purchases of AI server racks for infrastructure projects in New South Wales and Victoria.
Government spending offered no relief. Operational expenditure edged down 0.2% in the quarter to an inflation-adjusted A$159.3 billion, while public fixed asset investment rose 0.9% to A$38.9 billion. The net contribution to GDP was zero, ending a run of strong outcomes from the public sector.
Inventories are expected to add 0.2 percentage points, providing only partial offset. Forecasts centre on a quarterly rise of 0.5%, slowing from the 0.8% gain recorded the prior quarter, with annual growth seen around 2.6%.
The broader backdrop is one of deliberate cooling. The Reserve Bank of Australia has delivered three rate increases this year, in February, March and May, returning the cash rate to 4.35% and fully reversing the prior easing cycle. Early signs suggest the tightening is beginning to bite: household consumption fell in April, home prices have flatlined, and unemployment has started to drift higher. The RBA projects growth slowing to 1.9% by the second quarter and 1.3% by year-end as the combined weight of policy tightening and the energy shock filters through.
Forecast for GDP due tomorrow may be revised. Stay tuned.
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The GDP print due Wednesday is shaping up as a soft one, with net trade subtracting 0.8 percentage points, well beyond the 0.5 points forecast, and government spending contributing nothing. Inventories adding 0.2 points provides only partial offset, leaving household consumption and business investment to carry the quarter. The RBA’s three rate hikes this year to 4.35% are already showing up in softer household spending, flat home prices and a drifting unemployment rate, and the bank’s own forecasts see growth decelerating sharply to 1.3% by year-end
