Australia’s net trade will subtract ~0.8ppt from Q1 GDP as data centre and fuel imports surged and commodity exports fell, with government spending flat and the current account deficit wider than forecast.

Earlier:

Summary points:

• Net exports will subtract 0.8 percentage points from Q1 GDP, worse than the 0.5 point drag forecast, as trade in goods and services fell into deficit for the first time since December quarter 2017
• Imports of data centre equipment hit historic highs, driven by bulk AI server rack purchases for infrastructure build-out in New South Wales and Victoria, alongside a surge in fuel imports; mining commodity exports fell
• The current account deficit widened to A$27.1 billion in Q1, from a revised A$23.0 billion the prior quarter, well above forecasts of A$23.2 billion
• Government spending was flat in Q1, with operational spending down 0.2% to A$159.3 billion and public fixed asset investment up 0.9% to A$38.9 billion; net contribution to GDP was zero
• Inventories are expected to add 0.2 percentage points to growth, providing partial offset; Q1 GDP forecasts centre on a 0.5% quarterly rise, slowing from 0.8% the prior quarter
• The RBA has raised rates three times this year to 4.35%, fully reversing last year’s easing; it forecasts growth slowing to 1.9% by Q2 and 1.3% by year-end

Australia’s economy enters Wednesday’s first-quarter GDP release carrying more drag than analysts had anticipated, with net trade set to subtract 0.8 percentage points from growth and government spending contributing nothing, leaving the headline figure heavily dependent on household consumption and business investment to avoid a sharp disappointment.

Data from the Australian Bureau of Statistics confirmed the current account deficit widened to A$27.1 billion in the March quarter, from a revised A$23.0 billion previously, well beyond forecasts of A$23.2 billion. Trade in goods and services fell into deficit for the first time since the December quarter of 2017, as mining commodity exports declined and imports surged on two fronts: fuel, reflecting the global energy shock from the Hormuz closure, and data centre equipment, where imports hit historic highs driven by bulk purchases of AI server racks for infrastructure projects in New South Wales and Victoria.

Government spending offered no relief. Operational expenditure edged down 0.2% in the quarter to an inflation-adjusted A$159.3 billion, while public fixed asset investment rose 0.9% to A$38.9 billion. The net contribution to GDP was zero, ending a run of strong outcomes from the public sector.

Inventories are expected to add 0.2 percentage points, providing only partial offset. Forecasts centre on a quarterly rise of 0.5%, slowing from the 0.8% gain recorded the prior quarter, with annual growth seen around 2.6%.

The broader backdrop is one of deliberate cooling. The Reserve Bank of Australia has delivered three rate increases this year, in February, March and May, returning the cash rate to 4.35% and fully reversing the prior easing cycle. Early signs suggest the tightening is beginning to bite: household consumption fell in April, home prices have flatlined, and unemployment has started to drift higher. The RBA projects growth slowing to 1.9% by the second quarter and 1.3% by year-end as the combined weight of policy tightening and the energy shock filters through.