Treasurer Scott Morrison has begun preparing the ground for weak or negative economic growth as the National Australia Bank marks down its forecasts, predicting a contraction of 0.1 per cent in the March quarter, making it the second quarter in three the economy has gone backwards.
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The March quarter national accounts, due for release next Wednesday, were to have been a cause for celebration, marking the point at which Australia drew level with the Netherlands in delivering 103 consecutive quarters of near-continuous growth, a world record.
The National Australia Bank is the first of the big financial institutions to forecast negative growth in the quarter. The AMP and the ANZ are each forecasting barely positive growth of 0.1 per cent. The Commonwealth is forecasting positive growth 0.5 per cent and Westpac is forecasting 0.4 per cent, downgraded from an earlier forecast of 0.6 per cent.
In a note to clients on Wednesday after "disappointing" news on capital investment, the ANZ warned there was a "downside risk" to its forecast of 0.1 per cent, promising an update early next week.
Mr Morrison told a Committee for the Economic Development of Australia conference on Wednesday that while the drag on the economy from the end of the mining investment boom was easy, the data was "lumpy" and the signals were "mixed".
While employment had been growing for seven straight months, and private engineering construction was climbing again for the first time since 2015, retail trade volumes "rose only modestly" in the March quarter," climbing just 0.1 per cent.
"In addition, quarterly private residential construction work done fell, with some of that reflecting adverse weather. As expected, Cyclone Debbie will also have a significant bearing on economic activity and commodity prices," Mr Morrison said.
The Australian economy has only contracted four times since the early 1990s recession. A fifth, coming just two quarters after the fourth, would add to the impression that economic growth is faltering rather than accelerating.
The May budget forecast a lift in economic growth from 1.75 per cent in 2016-17 to 2.75 per cent in 2017-18 to 3 per cent in 2018-19.
Private capital investment climbed a weaker than expected 0.3 per cent in the March quarter, in what was only the second increase since 2014. Mining investment climbed marginally for the first time in 11 quarters, manufacturing investment climbed strongly (up 6.6 per cent in the quarter) and investment in 'other selected industries' slipped 0.5 per cent.
The mining firms surveyed by the Bureau of Statistics expect to wind back investment a further 22 per cent in the year ahead while non-mining firms expect to lift investment 3.7 per cent.
Mr Morrison told the conference the drag on the economy from mining was "almost at an end", with Australia around 90 per cent of the way through the downturn.
Other Reserve Bank figures released on Wednesday showed commodity export prices slid a further 6.8 per cent in May to be 10 per cent below their peak in January.
In a statement, Shadow Treasurer Chris Bowen mocked Mr Morrison's caution about the March quarter national accounts saying his budget night message of "better days ahead" had been replaced with "risks to this growth".
"The fact is the government is presiding over an Australian economy where real wages are in decline alongside record underemployment," he said. "The budget shows a return to surplus and economic growth based on forecasts that aren't matched with reality."
Other figures released on Wednesday showed a bounceback in retail sales of 1 per cent in April, centred on a recovery in Queensland after Cyclone Debbie. Capital city home prices fell 1.1 per cent in May, led by falls of 1.3 per cent in Sydney and 1.7 per cent in Melbourne. Over the past three months Sydney prices have been flat and Melbourne prices up just 0.7 per cent.
Mr Morrison said the easing in home prices reflected prudent measures taken by authorities to take some of the heat out of the market by, among other things, clamping down on interest-only loans.
"Given around 80 per cent of Australia's $2.1 trillion household debt is tied up in mortgages, it is important to tread carefully when tinkering with the housing market," he said.
