GDP data tops the economic agenda, RBA officials speak

Australia’s economic growth story this year would be pretty lackluster without a saving grace.

The boom in data center investment has reversed this trend, as rising interest rates and the Iran war weighed on growth across the economy.

March quarter gross domestic product figures to be published by the Australian Bureau of Statistics on Wednesday are expected to show a moderate slowdown of up to 0.5 per cent, with annual growth expected to be 2.6 per cent.

But that figure would be even lower if not for a record 96 percent increase in data center spending to $8.6 billion.

Westpac senior economist Pat Bustamante said national accounts data was likely to show new investment accelerating to six per cent in the quarter and 10.3 per cent annually – the strongest quarterly growth since 2012.

“Construction has now accelerated and is becoming more evident at a time when other components of GDP that are more sensitive to increases in interest rates are slowing (household consumption) or going backwards (new housing construction),” he said.

But much of the growth in data center spending is related to the purchase of server racks and processing equipment, which are largely imported.

“We expect much of the capital expenditure on equipment to ‘leak through’ through increased imports,” Mr. Bustamante said.

“Despite this leakage, we show that data center investment still has significantly broader ‘spillover’ effects on GDP and employment as structures are built and equipment is transported, assembled and installed, and that this economic boost tends to be front-loaded.”

Apart from investment, demand growth appears to have slowed, he said.

ANZ economist Adam Boyton said the negative effects would emerge more strongly in the June quarter data, given the data only covers one month of the Middle East conflict and two interest rate hikes.

Other figures to look at throughout the week include house values ​​from property data firm Cotality on Monday, ABS building approvals on Tuesday and the trade balance on Thursday.

AMP chief economist Shane Oliver expects a 0.1 per cent fall in national house prices in May, but the fall could be steeper in Sydney and Melbourne.

Another important development in Australia’s economic calendar was the minimum wage decision to be taken by the Fair Work Commission on Tuesday.

Unions are pushing for a six per cent increase for Australia’s almost three million minimum wage and reward earners, while business groups have also recommended pay rises of between 3 and 3.5 per cent.

The commission tends to choose a figure in the middle.

While the decision’s direct impact on inflation is relatively modest, given the limited share of affected workers, economists warn that it is being used as an economy-wide bargaining benchmark.

The Federal Reserve’s response to domestic data will be revealed when Governor Michele Bullock and Deputy Governor Christopher Kent take center stage at a senate estimates hearing on Thursday.

Deputy governor Andrew Hauser will take part in a fireside chat hosted by Sky News and The Australian on Friday.

However, as rumors grow that the United States and Iran are close to reaching a new agreement, domestic developments may once again be overshadowed by events abroad.

Commonwealth Bank geoeconomist Madison Cartwright estimates there is a 70 per cent chance of finalizing an agreement to reopen the Strait of Hormuz within the next week; This could be good news for global inflation and economic growth prospects.

Meanwhile, Wall Street’s main indexes posted weekly and monthly gains as investors awaited details of the negotiations.

On Friday, the Dow Jones index increased by 0.72 percent to 51,032.34 points, the S&P 500 index increased by 0.22 percent to 7,580.07 points and the Nasdaq index increased by 0.21 percent to 26,972.62 points.

Australian stock futures fell 13 points, or 0.14 percent, to 17,025.

The S&P/ASX200 gained 138.8 points on Friday, up 1.62 per cent to 8,731.7 points, while the broader All Ordinaries index rose 145.4 points, or 1.65 per cent, to 8,965 points.