NEW YORK (TheStreet) -- Australian GDP surged in the March quarter but the hidden specter of stalling domestic demand and stagnant income threatens economic growth. This could spur the Reserve Bank of Australia to loosen its monetary policy, which will have implications for Australian Dollar currency traders.
Australian year-over-year GDP growth beat market forecasts at 2.3%, leaving both currency traders and economists scratching their heads. However, the Australian economy faces additional headwinds as domestic demand stalls and incomes remain under tight pressure.
The surprise growth in Australian GDP represented more a rebuilding of inventory stocks as well as a slight increase in net exports. Net Exports increased by 0.5% during the March quarter and Inventories added approximately 0.3%. These increases helped to raise GDP but a flat domestic economy still signals problems ahead.
In contrast, Australian domestic demand stalled in the March quarter, causing annual domestic demand growth to fall to 0.8%. The economy continues to be effected by the lower global commodity prices, and lackluster demand from China, which has flowed through to domestic demand and consumption.
In practical terms, Australian households are likely seeing little growth in their incomes, while facing the prospect of a toughening job market. Australian wage growth remains exceedingly weak rising just 0.1%, nominally, in the March quarter. There is also a significant level of spare capacity within the labor market which is likely to put further pressure on income levels. Although consumer spending remains somewhat robust, the expectations of a softening economy and tough labor marker will inevitably flow through to the consumer consumption data in the next quarter.