Today’s Q1 GDP data show that Australia’s economy contracted in early 2011 at its fastest pace since the 1991 recession. However, the weakness was down to local floods and Cyclone Yasi. Growth will inevitably resume in coming quarters. The key point is that strengthening business investment is set to bring above-trend growth in 2012. Accordingly, we still expect monetary tightening to resume by Q3 and see the cash rate rising more aggressively than markets anticipate.
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