Overshoot in business confidence

The notable improvement in a number of leading activity indicators in the past month or so is consistent with a sizeable pick-up in GDP growth in Australia. But we remain cautious about the prospects of sharp rebound. For one, although the drag from mining investment is set to lessen, the boost from dwelling investment will soon fade. And while consumption growth is on track to improve somewhat in the coming quarters, a sharp rebound seems unlikely. All told, domestic demand will probably remain subdued this year and real GDP growth will remain well below potential.