Westpac Economic's weekly wrap

This week the focus was squarely on the RBA and Australian Q1 GDP. While the 'no change' result met expectations, the open ended nature of the guidance was arguably a little more bullish than the market had anticipated, particularly given it came just a week after the poor Q1 Capex investment release. For Q1 GDP, the headline result was above expectations, but only because of net exports and inventories. Domestic demand was flat in Q1 and up just 0.8%yr. The impact of the mining investment downturn was clearly apparent, as was the partial offset from residential construction. The key result was really the weakness in household consumption. The decline in the terms of trade has had a material impact on real household incomes, restricting momentum. This is a risk to the RBA's expectation of a strengthening consumer. Next week the focus shifts to Wesptac-MI consumer sentiment and the labour market.