Treasurer Scott Morrison has warned the economy's future is not yet secure as Australia prepares to stumble across the line on Wednesday to grab the world record for the longest period of consecutive growth.
The median updated forecast of all 23 economic institutions surveyed by Bloomberg is for growth of just 0.3 per cent, enough to put Australia on level pegging with the Netherlands for the longest run of uninterrupted growth.
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Interest rates steady for now
The Reserve Bank leaves the cash rate at 1.5 per cent. Eryk Bagshaw explains the decision.
But several banks have revised down their forecasts ahead of the release of the national accounts, with the Commonwealth Bank predicting growth of just 0.1 per cent. The National Australia Bank has forecast a negative result of -0.1 per cent.
Figures released on Tuesday showed Australia's current account [the difference between all imports and exports] recorded the smallest deficit in 15 years, but it may not be enough to stave off only the fourth quarter of negative growth since the recession of the early 1990s.
"The release of the data on exports and government investment in the first quarter has led us to revise down our forecast for gross domestic product growth in the first quarter from 0.3 per cent to -0.5 per cent," said Capital Economics Chief Australia & New Zealand Economist Paul Dales.
Mr Dales said "things would get very tricky" for the Reserve Bank if GDP fell in the first three months of this year and then again in the next quarter.
"Even if the Reserve Bank still doesn't want to cut interest rates below 1.5 per cent for fear of stoking the housing market and even if it thinks any such recession is due to temporary factors, it would be very brave for it to sit on its hands when the papers are shouting about the first recession in 26 years," he said.
In leaving interest rates on hold at record lows for the 10th consecutive month on Tuesday, the Reserve Bank was more optimistic.
"Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent," Reserve Bank Governor Philip Lowe said.
The board left monetary policy unchanged due to the "slow growth in real wages," mixed housing market outcomes, and the decline in the price of iron ore and coal, while inflation moved back towards the the bank's target of between 2-3 per cent.
Analysts said the economic results for the first three months of this year came in "weaker than expected" taking particular aim at the Turnbull government's "disappointing spending," despite the Coalition's investment and infrastructure rhetoric.
"Of most significance to our GDP forecasts, government spending numbers released today disappointed badly," said JP Morgan's Tom Kennedy. "Government consumption rose just 1 per cent quarter on quarter, and more significantly, public capital expenditure posted a large decline of 2.7 per cent."
Mr Morrison said the government had invested $75 billion in infrastructure and foreshadowed weaker GDP outcomes in May's budget.
"This more conservative forecast is broadly consistent with the Reserve Bank, international organisations and private sector economists," he said. "These are all reasons to be more optimistic about the days ahead, but such days must be secured."
Commsec economist Craig James said the "world's longest economic expansion was still intact."
To keep the economy ticking along, five of 23 forecasters surveyed by Bloomberg are now beginning to predict a cut within the next year, as house prices begin to cool in the overheated eastern housing markets.
Dwelling prices fell by 1.7 per cent in Melbourne and 1.3 per cent in Sydney, during the seasonally weak month of May according to property monitor Core Logic.
The more house prices calm down, the more room the Reserve Bank has to cut rates by minimising the risk of stoking the market.
"If this recent slowing develops into a more sustained trend, the Bank may be able to consider alternative scenarios to a steady cash rate," said CoreLogic's head of research, Tim Lawless.
The market is now pricing in a 21 per cent chance of rate cut within the next year.
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