• Next week will be a busy one for economic data. The national accounts on Wednesday will be of particular focus.

  • In addition, data will be published on the balance of payments, inventories, private sector credit and building approvals on Tuesday. Dwelling prices, international trade and lending indicators will be released on Wednesday, Thursday and Friday respectively.

  • Overseas, labour market data for the Eurozone and US will print. In Canada, GDP figures will be released and the Bank of Canada will meet to set the overnight policy rate. We will also get preliminary read of May inflation for the Eurozone.

Australia started the week with a new government, with the Australian Labor Party (ALP) winning the federal election over the weekend. Counting is ongoing but it appears at this stage they will be able to form a majority government. It is our view that the incoming government’s policies do not include anything that would cause us to change our economic forecasts. For more information, see this note by Head of Australian Economics, Gareth Aird.

In terms of economic data, it was a quiet week with construction work done, private capex and retail trade printing. Construction work done fell by 0.9% in Q1 2022. The result was softer than we and the market expected and it could be evidence that capacity constraints and rising prices are having an impact on output in the sector. Actual private capex fell 0.3% in the quarter, again softer than we and the market expected. Capex intentions were very strong for next financial year, pointing to a very firm outlook for business investment over the next fiscal year. As we have noted through the week, capital investment will assist in boosting productive capacity of the economy which in effect will dampen inflationary pressures in the longer term. However, in the near term large volumes of investment spend can add to the inflationary pulse. Retail trade increased by 0.9% in April 2022. Consumer spending has so far remained resilient despite falling sentiment and cost of living pressures.

Looking ahead, next week brings a plethora of economic data. Of most importance will be the Q1 2022 national accounts on Wednesday. Our preliminary forecast is that that real GDP will grow by 0.5%/qtr and 2.8% through the year. This growth will be driven by a solid 2% lift in household consumption. We anticipate public spending and inventories will also support growth. Net exports will be a significant drag on growth, with strong import volume growth in the quarter. We see dwelling investment and business investment broadly flat over the quarter. There are some other salient figures to watch in the national accounts. We believe the terms of trade will increase by 4.7% reflecting surging export prices. This will provide a boost to nominal GDP (forecast +2.6%/qtr) which will incorporate the high Q1 2022 CPI result. Labour costs will be of relevance due to the current inflationary context and implications for monetary policy. We expect labour costs to show wage pressure forming but to confirm that Australia is not facing the wage price spiral seen abroad. Our view is that the Q1 2022 national accounts will not alter the path of monetary policy and the RBA will raise the cash rate by 25bp in June. For more information on what we are watching closely from the national accounts and its implications on monetary policy, see the Q1 GDP preview overleaf.

The balance of payments will be released on Tuesday. We anticipate the current account surplus to widen to $A15.1bn. Net exports are forecast to detract 1.4pts from growth in the first quarter of 2022. Inventories are released in Tuesday’s business indicators. We expect a strong rise of 2.0% in the quarter as firms build up inventories to prepare for higher prices and create a buffer for disrupted supply chains.

Building approvals for April 2022 also will be released on Tuesday.  We forecast a 5% fall. Approvals have been choppy over recent months due to the artificially low result in January and subsequent base effects in the following two months. Approvals have trended down since the culmination of the HomeBuilder scheme and we see the trend as likely to continue. CoreLogic monthly dwelling prices will be confirmed on Wednesday. Based on the daily data, we forecast national dwelling prices to fall by 0.2%. Cooling markets in Sydney and Melbourne are expected to fall by 0.9% and 0.5% respectively. Prices have continued to push higher in Adelaide, Brisbane and Perth.

On Thursday, International trade will reveal the trade balance for April 2022. We forecast a modest reduction in the trade surplus, down to $A8.5bn. We don’t see any major factors moving the trade balance significantly. The RBA commodity price index rose a little during the month which should support exports.  Imports should remain elevated on the back of a resilient consumer. The last release of the week will be lending indicators for April 2022. Our internal lending data indicates a fall in the month and we anticipate a 6% drop in total housing related lending (excluding refinancing). This is in line with our broader view that lending will cool throughout 2022. Housing affordability limits, cost of living concerns and rising interest rates and inflation are a significant headwind at present. This is especially true in large markets in NSW and Victoria.

Offshore, non farm payrolls will be released in the US. Our international economics team expects another strong month of job gains (+400k) and earnings (+0.5%/mth). Also in the US, the ISM manufacturing PMI will print, with a significant fall expected. The FOMC beige book will published, which will provide insight into how businesses are dealing with cost increases, and if they are passing them on to customers. In Canada, GDP growth should again be solid in March, supported by easing Omicron restrictions. The Bank of Canada will meet, where it is expected to increase the overnight policy rate by 50 basis points to 1.50%. In the Eurozone, prelim CPI for May will remain elevated. Further insight into how Eurozone spending is responding to inflationary pressures will be revealed with May retail sales also released next week.

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CBA’s Global Economic and Markets Research team publishes a wide range of economic and financial research each week covering the latest data, trends, policy developments and topical issues in Australia and other major economies. To access or subscribe to these publications please visit the GEMR website.

Our Economic Expert

Harry Ottley is an Associate Economist at the Commonwealth Bank. He holds a Bachelor of Commerce (Economics) and Bachelor of Psychological Science from the University of Wollongong. After completing the NSW Government Graduate program at NSW Treasury, Harry spent a year in the Macroeconomics team within Treasury where he analysed the NSW and Australian economies and assisted with formulating economic forecasts.