Australian growth remains meek

The report on Australia's national accounts for the December quarter which printed the day after the Reserve Bank's board meeting would not have provided the Bank with much comfort around the economy. 

This set of national accounts was better than the one we saw in the September quarter. Domestic demand lifted in the quarter by 0.6% compared to a contraction of 0.4% in the September quarter. 

There was a stronger tone in household expenditure which expanded by 0.9% compared to 0.6% in the previous 3 quarters (particularly revised up from 0.4% in the September quarter). 

The household sector respond to the income squeeze from the contraction in the terms of trade (average earnings per employee contracted by 0.5%) by lowering their savings rate from 9.3% to 9.0%. 

A number of headwinds were still apparent, offsetting those modest positives. In particular investmenton machinery and equipment contracted by 0.8% and non-dwelling construction was also down by0.8%. 

Westpac notes in a report on Tuesday:

• Despite some encouraging details the momentum in the economy was little changed from 0.4% in the September quarter to 0.5% in the December quarter.
• That means that annualised growth in the second half of 2014 is less than 2%, well below the Reserve Bank's assessment of trend growth of 3.25% and confirming their concerns that below trend growth will persist for longer than had been assumed through most of 2014.