Australia: Strong growth but not broad-based

Economic growth accelerated to +1% q/q in Q1 2018 (from +0.5% in Q4), driven by an increase in private investment (+1.2% q/q) and robust government consumption (+1.6% q/q). However, private consumption was weak (+0.3% q/q) and public investment contracted in Q1 (-2% q/q). Exports advanced by +2.4% q/q in Q1, supported by solid demand from China. Looking ahead, there is room for cautious optimism. PMI figures suggest that business sentiment is still firm: the Manufacturing PMI came in at 57.5 points in May, the Services PMI at 59.0 points. And this is underpinned by an improved corporate financial health: private non-financial corporation’s gross operating surplus was up +6% q/q. Pockets of vulnerability stem from the household sector where debt is elevated (the household’s debt to income ratio is at 188.6%). In that context, we forecast a modest acceleration of economic growth to +2.7% in 2018 (from +2.2% in 2017).