Data surprises mean Australia's economy might not have shrunk in first quarter

SYDNEY: Australia boasted a record current account surplus last quarter as firm export prices and a fall in imports provided a timely boost to growth, just as much of the domestic economy began to shut down to combat the coronavirus.

Other data out on Tuesday showed government spending also added to growth in the March quarter, while companies reported better sales and profits than many expected.

Those figures suggest the economy might not have shrunk in the quarter as previously feared. Gross domestic product (GDP) data, due on Wednesday, had been forecast to show output contracted 0.3%, the first fall since early 2011.

“A small positive print cannot be ruled out,” said Su-Lin Ong, chief economist at RBC Capital Markets.

“But the likely collapse in activity in the current quarter and accompanying impact on the labour market...is a sharp and deep shock through the whole economy with likely lasting ramifications.”

The Reserve Bank of Australia (RBA) is hopeful the slowdown would not be quite as dire as first feared given the country’s success in containing the virus and massive injections of stimulus from it and the government.

The central bank holds its June policy meeting on Tuesday and is widely expected to keep rates at a record low of 0.25% while underlining a commitment to supporting the economy.

The conservative government of Scott Morrison has pledged over A$200 billion in spending, mainly on jobs support, and is currently flagging more dollars for the housing industry.

Tuesday’s data from the Australian Bureau of Statistics showed government spending rose strongly in the first quarter likely adding around 0.3 percentage points to GDP.

Firms also enjoyed a solid rise in sales in the quarter, in part due to panic buying of staples ahead of the lockdown in mid-March, which in turn led to a run down in inventories.

Another bright spot was trade as the country’s current account surplus swelled to a record A$8.4 billion ($5.70 billion) in the first quarter, handily topping forecasts of A$6.3 billion.

Solid demand from China and supply constraints helped keep prices high for key resource exports, particularly iron ore and gold, a trend that continued into April and May.

Export volumes were hampered a little by bad weather, but imports fell much further, adding another 0.5 percentage points to growth and again beating forecasts.