The Australian economy expanded 2.3% in the first quarter

Australia’s first-quarter GDP expanded 2.3% year-on-year, just short of analysts’ expectations.

Economists polled by Reuters had expected an expansion of 2.4%, compared to a 2.7% expansion in the fourth quarter of 2022. On a quarterly basis, gross domestic product grew by 0.2%, compared to the 0.3% expected in a Reuters poll. .

Kathryn Keenan, Head of National Accounts Division Australian Bureau of StatisticsHe said: “This is the sixth consecutive rise in quarterly GDP, but the slowest growth since the Covid-19 delta shutdown in the September 2021 quarter.”

“Private and public gross fixed capital formation were the main drivers of GDP growth this quarter,” Keenan said.

GDP readings are central to the RBA’s decision-making process for its monetary policy. Just on Tuesday, the Reserve Bank of Australia surprised the markets and raised its benchmark interest rate by 25 basis points to 4.1%, the highest level in 11 years.

Early Wednesday morning, Reserve Bank of Australia Governor Philip Lowe Speech At the Morgan Stanley Australia summit, he reiterated his position that the central bank would seek a “narrow path” in the country’s monetary policy.

In this “narrow path” that Lowe envisions, inflation in Australia returns to the target range of 2% to 3%, the economy continues to grow, and gains in the labor market are sustained.

“It is still possible to go down this road and our ambition is to do so. But it is a narrow road and is likely to be a bumpy road with risks on both sides,” Lowe said.

Lowe explained that the intention to maintain an improvement in the labor market “does not mean that [RBA] It will bear continued high inflation.”

As such, the decision to raise interest rates again was taken on Tuesday “to provide greater confidence that inflation will return to target within a reasonable time frame,” he said.

Lowe listed economic data points that the RBA will watch to formulate its moves forward, including the global economy, household spending, and growth in unit labor costs.

Abhijit Surya, Australian and New Zealand economist at Capital Economics, believes that while GDP has slowed and is expected to slow further, productivity growth remains “dismal”.

Gross domestic product per hour worked fell 0.3% quarter-on-quarter in the period, Surya wrote, leading to an annual decline in productivity of 4.6% – the largest drop on record.

He also adds that labor market data indicates that productivity is likely to weaken further in the quarter, which should support unit labor cost growth and keep service inflation stubbornly high.

Syria currently has a peak appreciation of 4.35% for the RBA’s benchmark rate, but in light of the GDP readings and Rowe’s speech, he highlights, “there is a real risk that the RBA will raise rates even higher.”