Stronger-than-expected exports in the first three months of the year appear to have saved the Abbott government the embarrassment of presiding over a sub-two per cent growing economy.
Even so, economists expect Wednesday’s national accounts to show the economy grew at a slower rate in the 12 months to March than the 2.5 per cent recorded in the year to December as a result of weak business investment.
Such subdued expectations weren’t enough to push the Reserve Bank into cutting the cash rate again at Tuesday’s board meeting, leaving it at a record low of two per cent.
“Having eased monetary policy last month, the board today judged that leaving the cash rate unchanged was appropriate at this meeting,” central bank governor Glenn Stevens said in a statement.
The governor believes the weakness in business capital expenditure in both the mining and non-mining sectors has been a drag on growth that will likely persist over the coming year.
The economy would likely be operating with a “degree of spare capacity” for some time yet, indicating that the jobless rate could rise further.
Westpac senior economist Andrew Hanlan says the “key surprise” for the coming March quarter national accounts was a 0.5 percentage points contribution from exports in figures released on Tuesday.
He expects the economy grew by 0.7 per cent in the quarter for an annual rate of 2.1 per cent.
Other figures showed the post-budget bounce in consumer confidence was consolidated in the past week to remain 11 per cent higher than a year ago and above its long-term average.
However, businesses are becoming increasingly pessimistic despite the tax breaks included in the May budget.
A survey by business consultants Dun and Bradstreet found sales expectations have fallen sharply, as have plans to employ more staff.
“The economy appears to have hit a brick wall,” Stephen Koukoulas, an economic adviser to Dun and Bradstreet, said.
Australian Chamber of Commerce and Industry director Jenny Lambert says the Fair Work Commission’s decision to award minimum wage works a $16 increase risks “hammering” employment prospects of the most vulnerable in the labour market.
“(It) may work against measures to encourage small business investment and growth,” she said in a statement.