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Improving GDP growth just put another nail in Australian house prices

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..

Top 3 ASX Blue Chips To Buy In 2018

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But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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