TD Securities strategists Prashant Newnaha and Alex Loo report that Australia's Q1 Gross Domestic Product (GDP) matched the Reserve Bank of Australia’s (RBA) implied forecast of 0.3% quarter-on-quarter growth [1]. However, they highlight that the underlying data shows weakness in both household and government spending, with economic activity primarily supported by a surge in data center investment [1]. Of the 0.95 percentage point increase in private demand, 0.69 percentage points were attributed to private investment, marking the largest contribution from this segment since Q1 2021 [1].
The strategists note that government consumption declined, influenced by the end of the government electricity rebate, which they estimate reduced government consumption by 0.3 percentage points and mechanically boosted private consumption by the same amount [1]. Excluding the impact of the electricity rebate, private consumption's contribution to GDP would have been flat [1]. Productivity also remains weak, with a -0.6% quarter-on-quarter change in Q1 [1].
Looking forward, TD Securities expects one final 25 basis point RBA rate hike in August, citing that the economy is still growing above its speed limit despite the weak demand backdrop [1]. They also point out that S&P Global's Composite PMI for May indicates downside risks for Q2 GDP growth but suggests upside risks to the RBA's 1% quarter-on-quarter trimmed mean CPI forecast for Q2 [1].
CONCLUSION
TD Securities anticipates a final RBA rate hike in August as Australian economic growth slows and household spending remains weak. The market is likely to focus on upcoming GDP and inflation data for further direction.