Surge in value of imports to limit 1Q22 GDP growth

Today’s March quarter national accounts and Gross Domestic Product (GDP) data will show a slowing in the pace of growth from the three months to December, principally due to the surge in the value of imports of oil, cars and consumer goods in the period.

Yesterday’s final data on the current account, government finances and key business indicators such as sales, inventories, wages and salaries will have a big influence on the size of the fall in March quarter growth from the December figure of 3.4% (and 4.2% through the year).

But none will have as big an impact on the slower GDP growth rate for the quarter than the sharp drop in the size of the current account surplus for the three months to March, according to the Australian Bureau of Statistics.

Economists are forecasting a quarterly economic growth result of around 0.4% to 0.6% for the quarter, a sharp slowdown from the 3.4% rise in the December quarter, and largely as a result of the negative contribution from the trade performance (net exports).

If correct, it would see the annual growth rate slow to 2.4% to 2.8% compared with 4.2% in the December quarter.

The most notable will be the big fall in the size of the current account surplus which is forecast to cut 1.7 percentage points from GDP growth in the national accounts, according to the estimate from the ABS. That will be slightly larger than the 1.5 percentage point cut in the three months to December.

That will be partially but not wholly offset by a 1.3 percentage point rise in government finance and spending activities in the quarter

The $7.5 billion surplus was the 12th quarterly surplus in a row, but it was also the lowest since before the pandemic as a 12% rise in the value of imports in the quarter more than offset a 9% rise in exports.

In fact, the current surplus narrowed for the third consecutive quarter and was driven by a $4.9 billion widening of the net primary income deficit and a fall of $900 million in the balance on goods and services surplus.

Head of International Statistics at the ABS, Andrew Tomadini, said: “While the Current Account Surplus narrowed to $7.5b in the quarter, Australia recorded its twelfth consecutive Current Account Surplus – the longest consecutive period of current account surpluses since the 1970s.”

“Imports of goods and services increased 12 per cent with rises across a range of categories including Intermediate and other merchandise goods, supported by increased domestic demand for COVID-19 rapid antigen tests. Consumption goods also contributed to the rise reflecting continued domestic demand, consistent with record levels of retail trade turnover.

“Exports of goods and services rose 9 per cent with exports of metal ores and minerals and coal, coke and briquettes the main drivers as commodity prices surged to record levels and global demand remained high.

Mr Tomadini added “The rise in the net primary income deficit reflected higher dividend payments to non-residents as profits continued to rise on the back of higher commodity prices.”

The government finance data showed a 0.7 percentage positive contribution to GDP from public sector demand, a 0.6 percentage point contribution from government final consumption expenditure and 0.1 percentage point contribution from government sector investment.

Inventories rose 3.2% in the quarter and will add to growth, as will the 1.2% growth in retail volumes in the three months to March, though that looks like it will be a tiny rise. Wages and salaries rose 1.8% in the quarter for a 5.2% rise of the year (it measures wages in a different way to the Wage Price Index which showed a smaller, 2.4% rise).

Business profits rose 10.2% in the quarter and more than 25% over the year, boosted by government support payments federally and in most states in the various Covid lockdowns and for the flooding events in NSW and southern Queensland.

The ABS said government finances were again influenced by support spending for Covid and the floods in NSW and southern Queensland in the quarter.

“Government fiscal support through March quarter 2022 targeted healthcare (Covid vaccinations and other spending) and support for individuals and businesses affected by floods in Queensland and New South Wales,” the ABS explained.

“Severe flooding events in Queensland and New South Wales increased Commonwealth assistance to households and businesses through the Australian Government Disaster Recovery Payment and other supports. The Australian Defence Force deployed over 7,000 personnel as part of Operation Flood Assist 2022,” the ABS said in its analysis.