For all the good news to come from Australia’s March quarter GDP report, the one area of weakness was the performance of household spending.
Household consumption — the largest part of the economy — grew by just 0.3%, leaving the change on a year earlier at 2.9%.
The small quarterly gain, noticeably smaller than in the final three months of 2017, added just 0.2 percentage points (ppts) to quarterly GDP, overshadowed by larger contributions from international trade and government demand.
The ABS said the increase was driven by spending on non-discretionary components, rather than on discretionary goods and services, hinting that ongoing weakness saw Australians trim back on the little luxuries in life.
The shift in behaviour is shown in the chart below from Westpac, revealing the contribution to consumption growth from individual categories.
“The detail showed a flat quarter for spending on retail items, broadly in line with the retail trade survey, but a weaker than expected result for spending on fuel and the large services component,” said Matthew Hassan, Senior Economist at Westpac.
However, rather than reflecting softer spending growth at home, Hassan says a significant portion of the weakness appears to be due to a pull-back in spending by Australian tourists abroad.
“Consumption includes spending by Australians abroad and excludes domestic spending by non-residents in Australia,” Hassan says, adding that Australia’s Balance of Payments report released on Tuesday showed outbound tourism spending fell 3.3% in real terms in the March quarter.
“Notably, two heavily tourism-affected items account for the lion’s share of the Q4 slowdown — ‘cafes and restaurants’ and ‘recreation’ — together accounting for 0.56ppts of the 0.68ppt turnaround [from the December quarter],” he said.
Interestingly, Hassan says measuring the contribution from net tourist spending has been a problem area for the ABS in recent quarters, noting that technical changes to the GDP measurement led to a “particularly big revision last quarter”.
We’ll have to see what happens when the June quarter GDP report is released in early September, but perhaps household consumption wasn’t that weak after all in early 2018.
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