The risks of Australia recording another negative growth quarter have increased, this time due to weakness in business spending on equipment, plant and machinery during the first three months of the year.
According to the ABS, it fell by a modest 0.1% to $12.133 billion in seasonally adjusted terms, continuing to weaken following a 0.5% drop in the prior quarter.
While not a terrible outcome in isolation, the trouble is that it will feed directly into Australia’s Q1 GDP report released next week, and will detract from economic growth.
That’s a problem considering that it was widely expected to make a positive contribution to GDP during the quarter.
And on the top of tepid retail sales volumes growth and a decline in residential construction over the same period, it’s seen the odds of Australia recording a flat GDP growth figure, or even another negative quarter, increase further.
“This represents downside risks to Q1 GDP with the strong likelihood of a flat or slightly negative GDP outcome on June 7,” said Tapas Strickland, an economist at the National Australia Bank.
“It implies a neutral contribution to Q1 GDP… but it appears a GDP print of around -0.1% to +0.1% quarter-on-quarter looks likely.”
Daniel Gradwell, an economist at ANZ Bank, shares a similar view.
“This is much softer than our previous expectation of moderate growth, and will pose some downside risk to our already-soft Q1 GDP forecast,” he said.
It’s a slightly unsettling prospect.
There’s now a real chance that Australia could record yet another negative growth quarter, the second in the past three should that outcome eventuate.
However, while it’s looking bad so far, it’s not yet time to reach for a bottle of the strongest liquor you can find.
Just because the early indicators for GDP have been unilaterally weak so far, there’s still a large number of inputs to come including net-exports, inventories, government investment, company profits and the biggest of them all, household consumption.
However, given the current trend of inputs undershooting expectations, and with retail sales volumes — accounting for around a third of total household consumption weak — it’s clear that the risks for GDP remain to the downside.
We’ll get a far clearer picture early next week before the GDP report itself arrives on June 7.