The Australian economy got a big boost from rising commodity prices in the March 2018 quarter with gross domestic product growth up 1% for the quarter and 3.1% annually according to today's update from the Australian Bureau of Statistics.
Strong coal, iron ore, and liquid gas production and prices contributed to a 2.9% quarterly GDP lift for the mining sector that still does much of the heavy lifting for the Australian economy.
In reaction to the news the Australian dollar has edged marginally higher to buy U.S. 76.6 cents.
The total annual growth of 3.1% beat forecasts and the pressure on the Reserve Bank of Australia to deliver a hike in cash lending rates is gently building.
The missing evidence in the rate hike case remains core inflation, with that sitting at just 1.9% for the March quarter and still below the Reserve Bank's targeted range between 2%-3%.
If the June 2018 quarter delivers a rise in core inflation above 2% then it's likely the Reserve Bank will be forced into lifting cash rates above 1.5% sooner than currently expected. In other words a cash rate hike could come before the end of 2019.
The elephant in the room is Australia's weakening house prices which will come under more pressure if lending rates are lifted this year. Tumbling house prices could shake wider economic confidence and as such I expect the RBA is likely to resist raising rates until the spring of 2019, unless stronger-than-expeted inflation data forces its hand.
For share market investors rising gross domestic product growth is a positive generally, with the recent rise in commodity kings such as BHP Billiton Limited (ASX: BHP), South32 Ltd (ASX: S32), Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) a response to improving commodity prices.
These businesses tend to be cyclical in nature though and as an investor I would prefer to look to long-term growth stories that can charge rising prices for their products throughout economic cycles. Some of the below businesses fit that bill quite nicely..
