GDP led by Service Industries

The Australian economy grew by 0.3% Quarter-on-Quarter and the pace of growth slowed in the March quarter, while it grew by 1.7% Year-on-Year basis. Growth was logged across the economy with 17 out of 20 industries growing during the quarter. Further, Service industries led the growth in gross value terms (GVA) with strength in all service industries except other services. Wholesale Trade, Transport, Postal and Warehousing, Financial and Insurance Services, Professional, Scientific and Technical Services, Health Care and Social Assistance each contributed 0.1% to growth in the March quarter. Agriculture, Forestry and Fishing decreased after robust growth in the previous two quarters, while Manufacturing decreased for the tenth time in eleven quarters. Moreover, the broad-based growth was forged by fall in exports and dwelling investment (dwellings fell 4.4% in the quarter). Dwelling investment declined in all states, except Victoria, and is the largest decline for Australia since June 2009. 

Key GDP metrics; (Source: ABS and RBA)
  
Increase in commodity prices against the previous year, providing a boost to Australia's national income. However, the prices of iron ore and coal have declined over recent months and unwinding some of the earlier increases.
Dwelling investment fell 4.4% qoq in the March quarter, while for it was declined by 2.5% yoy. All states except for Victoria witnessed a fall in dwelling investment during the quarter. Western Australia experienced its sixth consecutive quarterly fall, while the Northern Territory experienced its eighth consecutive fall. Compensation of employees (COE) increased 1.0% during the quarter, a pick up from the negative growth recorded in the December quarter, and is consistent with other labor market data. COE is still only 1.5% higher through the year, and continuing to contribute to the reduction in the household saving rate as it fell to 4.7% in the March quarter against 9.4% in March quarter 2013.
 
                    
                            Source: Australian Bureau of Statistics
 
Current account deficit surprised on the down side
The current account deficit fell $403m (11%) to $3,108m in the March quarter 2017 against the street expectations of $500 million and surprised on the downside. Exports of goods and services fell 1.6% after six consecutive quarters of growth. This result was driven by a decrease in exports of goods (2.6%), with mineral ores and coal being the main detractors. However, the contraction was partially offset by a rise in exports of services (2.5%). In seasonally adjusted chain volume terms, the balance on goods and services surplus decreased $2,966 million (85 per cent) to $543 million from $3,509m in the December quarter 2016. Further, in volume terms, imports grew while exports went down, and as a result international trade is expected to detract 0.7% of March quarter GDP. 

Current Account Balance; (Source: ABS and RBA)
 
In original current price terms, the March quarter 2017 current account deficit was $3,524m, a fall of $596m (14%) over the December quarter 2016 deficit.The balance on goods and services was a net surplus of $9,045m, while the primary income was a net deficit of $11,998m and secondary income was a net deficit of $571m.
 
                           
                                  Source: Australian Bureau of Statistics
 
End of mining investment boom
Domestically, the transition to lower levels of mining investment following the mining investment boom seems to be completed and the business investment has picked up in those areas not directly affected by the decline in mining investment.  Further, business conditions have improved and capacity utilization has increased. The Reserve Bank of Australia kept interest rates on hold at 1.5% for the ninth consecutive month, in its monetary policy review on 06 June 2017. The economy is expected to grow gradually by more than 3% over the next couple of years, despite quarter-to-quarter variation in the growth figures. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom as an appreciating exchange rate would complicate the economic transition.
 
 
Source: Australian Bureau of Statistics 
 
Rising prices in Housing market
Housing market conditions remained vary around the country. Prices have been rising rapidly in some markets, while in other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years and rent increases are the slowest for two decades. Notably, growth in housing debt has outpaced the slow growth in household incomes. However, the recent supervisory measures on mortgages are expected to address the risks associated with high and rising levels of indebtedness. Further, lenders have also announced increases in mortgage rates, particularly those paid by investors and on interest-only loans.
 
                 
Source: Australian Bureau of Statistics

International investment position (IIP)
Australia's net IIP liability position decreased by $2.7b to $1,025.5b at 31 March 2017 against the previous quarter. Further, its net foreign debt liability decreased $13.6b (1%) to $1,015.0b, while net foreign equity had a turnaround of $10.9b from a net asset position of $0.3b at 31 December 2016 to a net liability position of $10.6b at 31 March 2017.

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