Australia’s economy surprisingly slowed in the September quarter, as the toll of higher interest rates hit consumers and trade turned negative.
Gross domestic product expanded 0.2% in the September quarter compared with the previous three months, marking an eighth consecutive quarter of growth, the Australian Bureau of Statistics said on Wednesday. Economists had forecast GDP growth would quicken to 0.5% from 0.4% in the June quarter.
Compared with the September quarter a year ago, GDP was 2.1% larger. Market consensus was for the annual pace to slow to 1.9% from 2.1% in the April-June period.
The ABS’s national accounts provide a broad view of the state of the economy ahead of the Albanese government’s mid-year economic fiscal outlook expected to be released by the treasurer, Jim Chalmers, in about a week’s time.
“Our economy grew faster than most of the major advanced economies through the year to the September quarter – faster than Germany, the UK, France, Canada and Italy,” Chalmers told a media conference. “[W]e have anticipated for some time a substantial slowing in our economy as the inevitable consequence of higher interest rates and global uncertainty.”
Gareth Aird, head of Australian economics for CBA, noted that interest paid on housing debt was up 70.6%, or $12.3bn, over the past year while income tax payable jumped an “astonishing” 23.4%, or $17.2bn, over that time.
Fiscal drag, also known as bracket creep, “is seeing an increasing share of households hand over a larger share of their income to the Commonwealth government”, Aird said.
Many of the GDP components – such as a surprise current account deficit of $158m in the September quarter compared with a $7.8bn surplus in the previous three months – had been released by the ABS in time for yesterday’s Reserve Bank cash rate decision.
The RBA opted to keep its key interest rate unchanged at 4.35% at its final board meeting for 2023. Its latest set of forecasts, released last month, anticipated the economy avoiding recession, an assessment given ballast with today’s GDP figures.
Still, today’s weak GDP figures suggest the economy was losing momentum even before the RBA snapped a run of four months of holding its cash rate steady by raising its cash rate to 12-year high of 4.35% in November.
Brendan Rynne, KPMG’s chief economist, said the GDP figures “justify yesterday’s rate pause by the RBA and must question whether further rate rises are needed”.
The RBA would “have its eyes” on the 2.6% increase in compensation of employees, the largest quarterly rise in a year albeit in line with employment growth, Rynne said.
The aggregate GDP figures also include the additional demand from about half a million extra people joining the economy in the past year through immigration.
On a per-person basis, GDP shrank in the September quarter by 0.5%, adding to a revised flat outcome for the December quarter and a 0.1% contraction in the June quarter.
While the decline in net exports lopped 0.6 percentage points from the quarterly growth tally, increased demand from the public sector clawed back about half that.
Ben Phillips, associate professor at ANU’s Centre for Social Research and Methods, said Australian living standards had “an incredible run” for two decades after the 1990 recession but they had all but stagnated for the past 11 years or so.
Living standards (real per capita household income) about where we were 13 years ago (or 15 years ago including GFC stimulus payments). pic.twitter.com/sUQPEdGHG7
— Ben Phillips (@BenPhillips_ANU) December 6, 2023
Household spending was unchanged in the September quarter, compared with forecast growth of 0.3% by CBA economists. The ABS said government rebates for electricity and an expanded childcare subsidy “saw increased government consumption on behalf of households”.
Compared with the September quarter last year, households spent just 0.4% more, or the last pace since the Covid pandemic hit spending in the March 2021 quarter.
“The slowdown in demand reflected the ongoing effects of higher mortgage interest rates and sustained cost of living pressures on household budgets,” the ABS said. Vehicle outlays, though, rose 13% as improved supply prompted more buyers back into car yards.
The 2023 FIFA Women’s World Cup also nudged spending 0.9% higher for hotels, cafes and restaurants, while transport service outlays rose 3.9%.
Consumption too, was, funded in part by a falling savings rate, with the household saving-to-income ratio falling for the eighth straight quarter to 1.1%, or the lowest level since the December quarter of 2007, the ABS said.
“The removal of the Low and Middle Income Tax Offset in the 2022-23 financial year meant many households had a higher income tax bill this quarter, which has contributed to the fall in the household saving ratio,” said Katherine Keenan, ABS’s head of national accounts.
“Increased interest paid on home loans and inflationary pressure on households were also likely factors behind the fall in the household savings ratio,” Keenan said.
Financial markets were little moved on the GDP figures, with the Australian dollar easing slightly to 65.6 US cents. Shares were holding on to most of their gains of about 0.8% for the day.
