Australia’s economy stays subdued as consumers cut spending
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Gross domestic product advanced 0.2 per cent from the prior quarter, propped up by government spending and matching economists’ estimate.
PHOTO: REUTERS
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Australia’s economic weakness persisted in the three months through June, as consumers hunkered down in the face of elevated borrowing costs and stubbornly sticky inflation.
Gross domestic product (GDP) advanced 0.2 per cent from the prior quarter, propped up by government spending and matching economists’ estimate, Australian Bureau of Statistics (ABS) data showed on Sept 4. From a year earlier, the economy grew 1 per cent from an upwardly revised 1.3 per cent and forecast of 0.9 per cent.
“Excluding the Covid-19 pandemic period, annual financial year economic growth was the lowest since 1991 to 1992 – the year that included the gradual recovery from the 1991 recession,” Ms Katherine Keenan, ABS head of National Accounts, said in a statement. The economy expanded 1.5 per cent during the financial year ended June 30.
The Australian dollar held on to its declines, as did the interest-rate-sensitive three-year government bond yield.
With annual growth slowing from a decade average of 2.4 per cent, the data is likely to ease concerns about demand-driven inflation pressures in the economy. That suggests the Reserve Bank of Australia (RBA) can remain in a holding pattern for a while in order to assess the economy, with the cash rate currently at a 12-year high of 4.35 per cent.
The RBA reckons the second quarter was the nadir of the slowdown, predicting the annual expansion will accelerate to 1.7 per cent by the year end before picking up to 2.5 per cent in late 2025.
Bloomberg Economics expects growth will remain subdued in 2024, as the cumulative impact of higher rates damps household demand and housing-related activity.
The Sept 4 data showed the household savings ratio held at 0.6 per cent, having slipped from a peak of 24.1 per cent in June 2020 and underscoring the limited financial cushion available to Australians.
Household spending slid 0.2 per cent in the second quarter, subtracting 0.1 percentage point from GDP growth. “The strongest detractor from growth was transport services, particularly reduced air travel,” the ABS’ Ms Keenan said. “This was the first fall for this series since the September 2021 quarter.”
Government spending climbed 1.4 per cent, led by programmes for health services and adding 0.3 point to GDP growth. The figures follow the RBA’s decision to leave rates unchanged in August, with governor Michele Bullock saying it was premature to think about rate cuts yet. Her deputy Andrew Hauser last week reinforced that view, saying inflation was still a “bit stickier” in Australia than in countries like the United States.
Most economists believe the RBA has concluded its tightening campaign, with a cut seen in February 2025. By comparison, the Federal Reserve is likely to cut rates in September, with Europe, New Zealand and the UK already on an easing path.
“Today’s National Accounts confirm the Australian economy barely grew in the June quarter,” Treasurer Jim Chalmers said in a statement. “Really soft growth reflects the impacts of global economic uncertainty, higher interest rates and persistent but moderating inflation.”
The Sept 4 GDP report also showed:
Services exports rose 5.6 per cent in the second quarter, following falls in the previous two periods. This was led by education-related travel services, particularly from a rise in average spending.
Per capita GDP fell for a sixth consecutive quarter, sliding 0.4 per cent.
Gross disposable income rose 0.9 per cent, outpacing a rise in nominal household spending of 0.7 per cent, the ABS said.
Higher household earnings were partly offset by an increase in income tax payable and mortgage payments.
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