How the latest GDP data could bring ASX 200 investors interest rate relief

Australia's GDP data could flag early rate relief for ASX 200 investors. But why?

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Amid stubborn inflation and resilient labour market figures, S&P/ASX 200 Index (ASX: XJO) investors have increasingly been eyeing 2025 for the first interest rate cuts from the Reserve Bank of Australia.

But the latest gross domestic product (GDP) data just released by the Australian Bureau of Statistics (ABS) could help steer the RBA board towards a first rate cut in 2024 instead.

Here's what we know.

ASX 200 may enjoy earlier interest rate cuts

The ABS reported that Australian GDP rose 0.1% in the March quarter and 1.1% since March 2023.

That's down from the 0.2% quarterly GDP boost in the December quarter. And it falls short of the consensus forecast of another 0.2% rise for the March quarter.

The ASX 200 initially dipped following the 11:30am AEST release but has since recovered to be up 0.3% in intraday trade.

Commenting on the results, Katherine Keenan, ABS head of national accounts, said:

GDP growth was weak in March, with the economy experiencing its lowest through the year growth since December 2020. GDP per capita fell for the fifth consecutive quarter, falling 0.4% in March and 1.3% through the year.

The ABS noted that net trade cut 0.9% from GDP growth over the quarter, with stronger import growth (+5.1%) than export growth (+0.7%).

And with public and private capital investments both falling, total capital investment declined 0.9% in the March quarter.

Keenan said:

Private investment fell by 0.8% driven by a decline of 4.3% in non-dwelling investment. This was due to a reduction in mining investment as well as a reduction in the number of small to medium building projects under construction compared to December.

Keenan added, "Despite the falls in public and private investment, the level of overall investment remained high and continued to exceed mining investment boom levels seen in the early 2010s."

Bad news could be good news

Weak economic growth might not be good news across the board for ASX 200 shares. But it could usher in interest rate cuts sooner than markets have been pricing in.

While no panacea, ASX 200 companies tend to perform better in lower-rate environments.

Addressing the Senate Economics Committee on Wednesday, RBA governor Michele Bullock said (courtesy of The Australian):

If we think we're on the narrow path, we can stay basically, pretty much where we are not ruling anything in ruling anything out. But if it turns out, for example, that inflation starts to go up again or it's much stickier than we think we're not getting it down, then we won't hesitate to move and raise interest rates again.

In contrast, if it turns out that the economy is much weaker than expected, and that puts more downward pressure on inflation, then we'll be looking to ease. So, they're the Plan Bs if you like. But they're central to the strategy.

ASX 200 investors will know the RBA's upcoming move on 18 June, when the central bank announces its next interest rate decision.

While today's GDP figures have upped the odds of a rate cut later in the year, most analysts expect the RBA to hold rates steady in June at the current 4.35%.

Stay tuned!

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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