Australia’s business indicators weaker than projections in Q1

In the first quarter, Australian firms’ profits came in softer than projected. Profits declined sharply by 4.7% q/q. The GDP measure of non-financial profits, adjusting for losses on inventories, declined 2.5% q/q. Meanwhile, profits in mining declined 9.6% in the first quarter, after falling 8.4% in the last quarter of 2015.

On a year-on-year basis, mining profits fell 21.7%. Non-mining profits also fell sharply by 3.1% q/q, following a decline of 2% in Q4 2015. On an annual basis, non-mining profits came in negative at -3.3%, first time since 2012 and confirming the weakness in previous week’s expectations in capital expenditures. There was a mixed performance throughout industries, with finance and manufacturing profits falling solidly, whereas transport and hospitality industries rising strongly.

Small business profits declined 3.2% quarter-on-quarter after a downward revision in Q4’s figure of a fall of 1.5%. Meanwhile, inventories grew 0.4% q/q in Q1. This suggests that stocks will contribute only over 0.1 percentage points to Q1 GDP growth, said ANZ in a research note.

Wages bill growth was steady at 0.6% q/q in Q1, implying that the GDP measure of wages bill is expected to moderately growth in the first quarter. As growth in employment was weaker in Q1, it suggests a moderate recovery in the economy’s GDP measure of the average wage rate, noted ANZ.

“We see some upside risk to our Q1 GDP growth forecast of +0.8% q/q, although we will firm up our estimate after public demand and net exports figures are published, added ANZ.