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Hedge Clippings | 05 June 2026
The ABS released the March quarter 2026 National Accounts on Wednesday, and the result was a notable slowdown. Australian GDP expanded by just 0.3% on a quarterly basis in Q1 2026, against the 0.8% rise in the prior quarter, with the country's GDP growing just 2.5% year-on-year, both figures missing expectations. The internals told a revealing story: the biggest impact in the quarter was investment in data centres. Westpac estimates that this investment, including spillover effects, drove all the growth this quarter and around 0.8 percentage points of GDP growth in year-ended terms. In other words, strip out the data boom, and the underlying economy effectively flatlined. ICT investment surged from around $2 to $8 billion per quarter as a result of datacentres, accounting for an estimated 85% of growth capital expenditure over the last year, and almost all in Q1 2026. This reveals that the uplift in investment is almost wholly reliant on the data boom, with negligible investment growth in other industries. The economy was clearly slowing even before the Middle East conflict, and we've yet to know how long Trump's short military excursion, now into its third month, is going to last. Adding to the problem is that three interest rate hikes are starting to impact the housing market, which is now subject to further negativity thanks to being side swiped by the changes to negative gearing and CGT contained in the budget. The implication for the RBA's next move is interesting to say the least. Going into their June meeting, the economy is weaker than the RBA had assumed just a month ago, and Q2 could be worse. The Middle East conflict's full impact flows through from April onwards. Adding to this is the April jobs data, showing unemployment rising to 4.5% for April. The bottom line is that the economy is in a genuine squeeze, whether Chalmers or Albanese want to admit it or not. Inflation remains well above target and fuel-driven second-round effects are still working through, but growth is slowing, the labour market is softening, and the trade account has only partially recovered. The RBA faces a classic stagflationary dilemma, albeit a mild one at this stage. Meanwhile, the potential for an acceleration in the decline in property prices further damaging consumer confidence could tip the balance, and the economy, over. Whether the RBA will about-turn again, stay on hold, or, as Westpac are predicting, increase to 4.6% will remain to be seen, but with the next meeting just 10 days away, we won't have to wait too long. News | Insights
May 2026 Performance News |
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