The March quarter national accounts were a soft print, but not a disaster. Growth slowed hard, the economy is still ticking over for the year, but the return to negative productivity is the real worry.
📈 GDP grew 0.3% QoQ (⬇️ 0.6%)
📈 GDP was up 2.5% YoY (↔️)
📈 GDP per capita fell 0.1% QoQ (⬇️ 0.6%)
📈 Productivity (GDP per hour worked) fell 0.6% QoQ (⬇️ 0.6%)
📈 Real unit labour costs rose 0.5% QoQ (⬆️ 1.2%)
📈 Household saving ratio fell to 6.2% (⬇️ 0.8%)
📈 Net trade detracted 0.8ppt from growth (⬇️ from nil)
The headline only stayed positive on the back of a surge in private investment, and even that came with a sting in the tail. Business investment in machinery and equipment jumped 16.3%, driven by data centre buildouts in NSW and Victoria. But almost all of that kit was imported, so the same spending that propped up the growth number also blew out imports and dragged net trade down 0.8 points. It tipped Australia into its first trade deficit since 2017. Strip out the data centre story and this was a weak quarter. Government spending added nothing, and household consumption was soft with discretionary spending essentially flat.
The productivity number is the one that should worry everyone. Output per hour worked went backwards 0.6% and is barely positive over the year at 0.3%. At the same time, real unit labour costs turned back up. In plain terms, we are paying more for each unit of output, which is exactly the dynamic that keeps domestic inflation sticky. With the RBA already hiking into the fuel shock, a fresh deterioration in productivity gives them even less room to move. The fall in household savings tells the same story from the other side, with the ratio dropping to 6.2% as families run down their buffers to cover higher fuel and energy costs.
The important caveat is that this print is backward looking. The March quarter only captured the very start of the Hormuz fuel shock, so the real damage is still ahead of us. The June quarter is where higher fuel, freight, and input costs land in full, right as households are tapped out and confidence is on the floor. If you are running an SME, do not take any comfort from a positive headline. Growth is slowing, your customers have less to spend, and your costs are still climbing. Plan your cash flow for a tougher second half, not a recovery.