New GDP figures show Australia's economic slowdown has begun. The economy expanded by just 0.3 percent in the March quarter, a sharp deceleration from the 0.9 percent growth recorded in the previous quarter. The data captures the impact of two of the three interest rate rises delivered so far this year.
The standout in the data was business investment, which rose 6 percent in the period and added 0.7 percentage points to the overall figure. Machinery and equipment recorded its largest rise in 30 years, driven primarily by data centre investment in New South Wales and Victoria.
However, because many of the components for data centre construction are imported, the strong investment figure was partly offset by a corresponding increase in imports that detracted from the headline GDP number. The mining sector was also hit by bad weather, pulling exports down slightly.
The household sector showed clear signs of strain under the weight of higher interest rates and rising fuel costs linked to the Middle East conflict. Household spending rose 0.5 percent but was largely contained to essential purchases, with discretionary spending only marginally higher.
Households had to dip into their savings to fund purchases, with the savings ratio declining from 7 percent to 6.2 percent. While still relatively high by historical standards, the downward trend suggests cracks are beginning to appear in household finances.
Per capita GDP went backwards, falling 0.1 percent in the quarter. This measure, which accounts for population growth, indicates that the average Australian's share of economic output actually shrank despite the positive headline growth figure.
Most economists expect one or two more interest rate rises, likely in August when the Reserve Bank receives its next inflation reading. CBA and HSBC are among a handful of institutions that believe the tightening cycle may already be complete. The RBA is expected to look through this backward-looking data when making its next decision.