While headline figures look great, not all is well. Wage growth, for example is very low, suggesting there is more weakness in the labour market than the headline unemployment rate would suggest. A continued fall in the terms of trade in the coming quarters will also erode nominal growth, which has been weak.
Furthermore, while the current composition of growth looks ok, momentum in key sectors appear to be fading or likely to fall faster in the coming year.
Looking at the quarterly contributions to activity its clear that the strong outturn was largely powered by exports. Stronger iron ore and coal exports provided the base, with rural exports strong as well.
While exports should broadly be strong again in the coming quarters, the massive jump in grain exports, for example, is unlikely to be persistent. This doesn't appear to be out of inventories.
Looking at the annual trends, we have seen net trade more than offset the fall in business investment. To be sure, investment has proven to be more sticky than expected, partly thanks to the composition of big projects shifting from iron ore and coal to natural gas.
While the impulse from stronger exports should remain, the drag from investment should intensify. That is the message from the most recent survey of capex intentions, which suggest a ~12% fall in investment in the next 12 months.
This is actually a bit better than when firms were asked 3 months ago. While mining investment is will still fall and manufacturing investment intentions remain dreadful, other industries have shown decent signs of improvement.
This is important as investment intentions in this part of the economy tend to get revised higher to a greater degree through the year than it does for mining or manufacturing. If the current pace of improvement is maintained, investment in the next 12 months may not be particularly weak.
One of the big drivers of this improvement as been the real estate industry, which accounted for around 50% of the uplift seen in this most recent estimate for FY15. Greater investment from retailers is also providing meaningful support.
This follows the lift in consumption and dwelling investment we have seen over the last 9 or so months.
However, more recently we have seen a noticeable loss in momentum.
For example, dwelling approvals have fallen a decent way from their highs. Home loan approvals are also peaking, while house prices have shown some signs of weakness as well. It would appear that the point of maximum impulse from lower interest rates is now passing.
Consumer confidence has also weakened quite a lot, with the most recent Federal budget accelerating the declines we have seen since the start of the year. Retail sales have also lost momentum over the last couple of months.
The contractionary budget won't be providing much of an offset to weakening investment and slowing momentum seen elsewhere, with spending and investment growth remaining low.
So some of the more rosy aspects of the Australian economy look like they will be under more pressure in the coming quarters. While real GDP growth has definitely held up better than many expect, many of the forward looking data suggests this is unlikely to last.
And this is likely to keep the RBA biased towards keeping rates on hold or lowering the cash rat if the AUD fails to fall.
While exports should broadly be strong again in the coming quarters, the massive jump in grain exports, for example, is unlikely to be persistent. This doesn't appear to be out of inventories.
Looking at the annual trends, we have seen net trade more than offset the fall in business investment. To be sure, investment has proven to be more sticky than expected, partly thanks to the composition of big projects shifting from iron ore and coal to natural gas.
This is actually a bit better than when firms were asked 3 months ago. While mining investment is will still fall and manufacturing investment intentions remain dreadful, other industries have shown decent signs of improvement.
However, more recently we have seen a noticeable loss in momentum.
And this is likely to keep the RBA biased towards keeping rates on hold or lowering the cash rat if the AUD fails to fall.
