By Stella Qiu
SYDNEY, June 2 (Reuters) – Australia’s net trade proved to be a major drag on the economy in the first quarter as imports of data centre equipment boomed and the value of fuel shipments surged due to the Iran war, while government spending added nothing to economic growth.
Inventories were expected to add 0.2 percentage points to growth, offsetting some of the drag from trade. Still, the overall soft partial data raised the risk of a sharp slowdown in the economy, with the closely watched quarterly gross domestic product report due on Wednesday.
The Commonwealth Bank of Australia downgraded its GDP forecast to be flat in the first quarter, from a 0.2% expansion before, tipping the annual rate would slow sharply from 2.6% to 2.1%.
“This would indicate that growth in the Australian economy has returned to around its speed limit,” said Belinda Allen, head of Australian economics at the CBA. “From here we are expecting the Australian economy to slow.”
Data from the Australian Bureau of Statistics out on Tuesday showed the current account deficit widened to A$27.1 billion ($19.41 billion) in the March quarter, from a revised A$23.0 billion the previous quarter. That compared with forecasts for a A$23.2 billion shortfall.
The ABS said net exports would subtract 0.8 percentage points from gross domestic product in the first quarter, compared with analyst forecasts of a drag of 0.5 percentage points.
“Trade in goods and services fell into a deficit for the first time since December quarter 2017, with exports of mining commodities falling and imports of data centre equipment and fuels rising,” said Jonathon Khoo, ABS head of international statistics.
“ADP equipment imports reached historic highs, led by bulk imports of AI server racks amid continued data centre infrastructure investment in New South Wales and Victoria,” he said.
Government spending was flat in the quarter, with the bureau estimating it made no contribution to growth after a run of strong outcomes.
That left a lot riding on business investment and household consumption. Forecasts are centred on a 0.5% quarterly rise in GDP on Wednesday, slowing from the 0.8% gain the previous quarter. On an annual basis, GDP likely expanded 2.6%.
The Reserve Bank of Australia has raised interest rates three times this year – in February, March and May – to 4.35%, fully reversing the amount of policy easing made last year, to head off a war-driven global energy shock.
There are signs the rapid-fire rate hikes are working to cool demand, with household consumption falling in April, national home prices flatlining and the unemployment rate starting to drift higher.
The RBA expects economic growth to slow to 1.9% by the second quarter and to 1.3% by the end of the year as policy tightening and the Iran war impact filter through to the real economy.
($1 = 1.4094 Australian dollars)
(Reporting by Stella Qiu and Wayne Cole; Editing by Sonali Paul, Sam Holmes and Jamie Freed)
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