Economic growth forecast to soften

Economic growth is slowing as the drag from weak exports and business investment overshadows any strength in consumer spending.


Economic growth is forecast to have slowed to 0.5 per cent in the June quarter, with an annual rate of 2.2 per cent, according to an AAP survey of 15 economists.

That would be slower than the surprisingly strong 0.9 per cent outcome in the March quarter, and 2.3 per cent rise over the 12 months to March, seasonally-adjusted.

The second quarter figures are due to be released on Wednesday.

Westpac senior economist Andrew Hanlan said exports will be the key swing factor for the second half of 2015.

“A five per cent surge in the opening months of the year – in part due to fewer weather disruptions than normal – partially reversed in the second quarter, down 2.5 per cent,” he said.

Seasonal factors like cyclones and floods, which typically disrupt coal and iron ore production, were relatively muted in the first quarter, Mr Hanlan said.

He also expects the growth rate to be crunched by sharply lower export prices relative to import prices – known as terms of trade.

“An income squeeze remains a key dynamic. Commodity prices have tumbled as global commodity supply expands and China’s economy slows,” he said.

As a result, Mr Hanlan predicts terms of trade to decline by 4.3 per cent in the quarter, following a three per cent drop over the previous three months.

AMP chief economist Shane Oliver said another big drag would be business investment, with the outlook looking bleak.

The latest business investment figures showed that capital spending is set to slump by about 25 per cent in the current financial year.

“That’s why we’re starting from a much weaker base in the June quarter,” he said.

“It’s one of those quarters where I wouldn’t be overly surprised if (gross domestic product growth) was a negative. There’s certainly a risk there.”

But, Dr Oliver said, consumer spending was likely to offset some of those negatives.

And, he said, a pickup in housing construction activity and somewhat better trade figures during the second half of 2015 would help push quarterly growth rates back up towards 0.5 or 0.6 per cent.

“Housing construction work done figures were on the soft side, so I think there’ll be a bounce back there. And we have seen a surge in building approvals,” he said.


* Median forecast for growth is 0.5pct

* Annual rate of growth forecast to be 2.2pct

* June quarter growth forecasts range from 0.2pct to 0.6pct