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Monthly Economic Indicators

Executive Summary

  • Recent developments continued to suggest a strong pace of growth in the March quarter.
  • While annual inflation eased to 1.5% in the quarter, rising demand is expected to lead to greater price pressures, and the Reserve Bank raised the OCR again in April.
  • International economic data were broadly positive, although risks remain in some areas.

Data releases in April point to continuing strong economic growth in the March quarter, boosted by household consumption, residential construction, improvements in the labour market and the elevated terms of trade.

Domestic demand and inflationary pressures are projected to rise. The Quarterly Survey of Business Opinion shows that business confidence remained close to a two-decade high in the March quarter, while consumer confidence was also at an elevated level and likely boosted by a stronger labour market. These and other indicators reinforce expectations of strong investment and household consumption in 2014.

While annual inflation eased to 1.5% in the March quarter, increasing capacity constraints are likely to gradually lead to greater price pressures. The Reserve Bank raised the Official Cash Rate by 25 basis points in April following the start of its monetary tightening cycle in March, which – as it continues – will moderate domestic demand.

Goods exports rose 15% in the year to March, driven by robust demand from China. Strong growth in short-term visitor arrivals points to higher tourist spending in the March quarter, which boosts services exports. However, dairy auction prices are easing from historically elevated levels.

All told, recent developments suggest an above-potential rate of real growth in the March quarter, and the outlook for 2014 and 2015 appears slightly stronger than expected in the Half Year Economic and Fiscal Update.

Developments in the international economy were positive in April. The Australian labour market showed tentative signs of recovery and US activity strengthened as the harsh winter receded. China’s growth in the March quarter was close to target at 7.4% on a year ago.

This month’s Special Topic looks at forward guidance on monetary policy by central banks in major advanced economies during and after the global financial crisis.

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