Tim Hext: Wages up, growth down, Australia struggling

Developments this week only change the current economic narrative at the margin. Pendal head of government bond strategies TIM HEXT explains

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Wages up

ON TUESDAY the Fair Work Commission (FWC) Annual Wage Review awarded an increase of 4.75% in award wages to 21.1% of the workforce, around 2.8 million workers.

As many of this cohort are casual or part time this impacts only 11.2% of the overall wage pool. Markets had expected something nearer 4% to 4.5%.

The RBA will be disappointed by this outcome, although they will not directly comment on it.

We estimate that this should add 0.2% to the closely followed Wage Price Index (WPI), although probably 0.1% was captured in the RBA’s recent WPI forecast of 3.2%.

Interestingly the FWC decision quoted the RBA headline inflation forecast of 4.8% for the end of June as its justification for the rise.

This forecast will likely prove too high given recent fuel price falls so perhaps an inadvertent own goal from the RBA.

Growth down

On Wednesday the National Accounts for the March quarter were released. As always, the two-month delay makes it less useful as a pointy end indicator, but the breadth of information is very powerful.

Overall, the economy grew at only 0.3% in Q1, down from a revised 0.9% in Q4 2025. On a per capita basis we are again going backwards (-0.1%).

The public sector has stepped back from the major engine of growth to being flat in the quarter. Household consumption grew by 0.5%, near average. The only bright spot is the data centre impacted business investment that grew by 5.7% in a quarter, alone adding 0.7% to GDP.

Keep in mind the first two months of the quarter hadn’t been impacted by the Middle East developments that hit confidence. The economy was already struggling, hit by rate hikes and higher inflation.

Australia struggling

The biggest take from today’s data and other recent data is the rapidly changing external account position of Australia. This dragged 0.8% from growth. This is volume not revenue based.

Part of this was weather impacting our commodity exports. However, a growing part is the changing trade position, which is very interesting.

Australia has had a trade surplus since 2017, leaving the ‘banana republic’ days behind us.

The current account also includes our net interest payments, which detracts from the current account position as we are a net debtor to the tune of around $1.2 trillion.

However, by late 2018 even our current account was in surplus. Australia for probably the first time in history was an exporter of capital to the world.

Now in 2026 commodity export volumes have flatlined and a boom in imports, led by technology for data centres, has now seen even the trade position slip back into deficit.

This is likely to continue for some time, despite BHP’s (ASX:BHP) share price suggesting blue skies ahead.

If commodity prices significantly fall, the cracks could become a crisis of sorts for Australia, as we collectively increasingly spend our wealth on imports – think not just technology but new cars, overseas holidays and fuel.

By volume, exports are up 10% over the last decade but imports are up 35%. Only a favourable term of trade shift has helped somewhat prop up our position.

What does this mean for markets?

We will save a more in depth look at what artificial intelligence and data centres mean for the economy and rates for another time.

None of this week’s data on its own will tip the RBA into action or no action in August.

However, the data does play into a difficult period ahead for the Australian economy, as workers try to keep pace with inflation but the economy is yet to see the dividends of all the technology related infrastructure spend.

If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through our accounts team

About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

Find out more about Pendal’s fixed interest strategies here

About Pendal

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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