Despite the solid headline in the Australia March national accounts, there is clearly some cause for caution with regard to the outlook for growth. The decline in the resources investment cycle still has some way to play out. It has declined from its peak at 7% in September 2012, but there is likely around another 3% of GDP adjustment to come. This will occur over the next 12-18 months and directly drag on growth.
Meanwhile, it is becoming clear from forward looking indicators that the rebalancing of investment to other sectors of investment has not gained significant traction - despite stimulatory policy settings. While this remains the case, growth will remain sub-trend.
"We expect that other sectors of the economy will continue to record below-average but consistent growth - not including the dwelling investment cycle. Yet despite no real consistent improvement, we do not expect deterioration either. This should allow the RBA to keep rates on hold so it can assess the impact, if any, that policy easing to date is having on the broader economy." notes BofA Merrill Lynch
