Treasurer Jim Chalmers said while today's GDP figures are "solid", they don't show the increasing financial pressures facing Australians.
Look back on Wednesday's updates.
Key events
- Why is the ASX tanking if the GDP figures are good? Gareth Hutchens explains
- What does this mean for inflation?
- Pressures will have implications on the budget, Chalmers says
- What has happened since these figures were recorded?
- Pressures have grown since this data, Jim Chalmers says
- Will we see a recession?
- The Australian economy grew 0.9 per cent in the June quarter
Live updates
By Bridget Judd
Stay up to date with the latest business news
This is where we'll have to leave things for this afternoon, but thanks for following along, and thanks to business reporter Gareth Hutchens for jumping in to tackle some of your questions.
As a reminder, you can stay across the latest business news right over here on our dedicated page.
You can also catch up on the full wrap by Michael Janda and Rachel Pupazzoni.
By Bridget Judd
Is it possible the RBA has put the brakes on too hard? Gareth Hutchens explains
A question - although most households are generally well off and have a higher than average savings ratio, as well as generally good coverage on mortgage debt (or none at all), could this latest interest rate hike and continuing fall in real wages mean that the RBA may have put the brakes on toohard? Because our significant shortage of skilled and unskilled labour plus rising prices of supplies and supply driven constraints may drive capacity restraints on people's ability to spend even if they want to. Not to mention continuing though lessened COVID restraints? — Foresooth
Thanks for your question.
Here's business reporter Gareth Hutchens:
"Yes, some economists are concerned that the RBA is lifting rates too quickly. They say the RBA should wait for a while to see what type of impact these rate rises will have, given there’s always a lag between rate rises and economic activity.
"A few months ago, some economists were already warning that the RBA’s plan to jack up rates so quickly could end with the RBA having to cut rates again, because the rate increases will be so high and sudden that they'll stifle growth and cause unemployment to rise too much.
"But that’s a risk the RBA is willing to run.
"Its priority is getting inflation back down, and the only lever it has to do that is interest rates. So, interest rates are going up."
By Bridget Judd
GDP figures promising, but more action needed to tackle inflation, Opposition says
Shadow Treasurer Angus Taylor says the latest GDP figures are promising, but they want more action on tackling inflation.
Shadow Treasurer Angus Taylor says it's on the government to come up with a plan to dampen inflation.
"The longer they wait the worse it gets, the longer they wait the more the Reserve Bank has to do to take the strength out of the demand side and that's what we don't want to see."
By Bridget Judd
Why is the ASX tanking if the GDP figures are good? Gareth Hutchens explains
Why is the ASX tanking today if the GDP figures are good? — Will
Thanks for your question, Will.
Here's business reporter Gareth Hutchens:
One thing to realise about the stock market is it doesn’t necessarily have anything to do with Australia’s economy, on a day-to-day basis.
Theoretically, it’s supposed to reflect the potential that companies listed on the stock market have of making future profits.
For example, let’s say some mining company has just discovered a rich deposit of gold somewhere in Western Australia. That company’s stock price should jump higher on the news, because when it finally gets that gold out of the ground it will make a lot of money.
Or let’s say some company listed on Australia’s stock market has operations in another country where a war has broken out. Suddenly, that company’s earnings potential is under threat. Its stock price could go down.
Neither of those stock prices have much to do with the “health” of Australia’s economy.
But another thing to understand about the ASX is that it’s dominated by a few industries. The twenty largest companies on the stock market include the major banks, the mining giants, the supermarket giants, a real estate group, and a gambling group.
Today, index heavyweights like Rio Tinto, Fortescue, and BHP have lost value, the big four banks have gone backwards, and the energy giants Santos and Woodside Energy have declined.
That’s dragged the index down.
They reasons they’ve fallen have very little to do with the fact that GDP in the June quarter (that is, economic activity that has already happened) was positive.
By Bridget Judd
GDP figures don't take into account rapid rate rises, economists caution
Today's figures show Australia’s economy grew 0.9 per cent in the June quarter and 3.6 per cent over the past year, but economists have cautioned those numbers don't tell the full story.
ANZ senior economist Felicity Emmett says the economy is in good shape, but the figures don't take into account the Reserve Bank's rapid interest rate rises.
"We know that there's a bit of a delay with banks passing that on to households in terms of their mortgage repayments, so we really won't get an impact until we see third quarter data for GDP later on this year."
By Bridget Judd
How can it be the strongest year-on-year growth in a decade? Gareth Hutchens explains
How can it be possible that it is the strongest year-on-year growth since 2011-13? — Chris
Thanks for your question, Chris.
Here's business reporter Gareth Hutchens:
"It’s directly related to the fact that economic activity deteriorated so much during the pandemic, peoples’ movement was restricted so heavily during the lockdowns, and the economy was pumped full of emergency stimulus when people had fewer opportunities to spend that money – which saw household savings soar.
"When those things started to return to normal, there was a lot of pent-up demand in the economy and households have been on a spending binge.
"So, starting from a low base of zero economic activity, we’ve suddenly seen a lot of economic activity.
"That’s why it’s the fastest pace in ten years."
By Bridget Judd
Household spending drove growth, as the savings ratio fell
Sean Crick, head of National Accounts at the ABS, says rises in household spending and exports drove growth in the June quarter (although as we heard earlier, the data doesn't quite tell the full story).
"This is the third consecutive quarter of economic growth, following a contraction in the September quarter 2021, which was impacted by the Delta outbreak."
Household spending rose 2.2 per cent for the quarter, contributing 1.1 percentage points to GDP.
Growth was driven by spending on travel related categories such as transport services and hotels, cafes and restaurants.
The household saving to income ratio fell for the third consecutive quarter, from 11.1 per cent to 8.7 per cent.
"Households were continuing to save but at a declining rate over the past three quarters. While the 8.7 per cent household saving ratio was the lowest since the start of the COVID-19 pandemic, it remains above pre-pandemic levels," Mr Crick said.
By Shiloh Payne
Interest rate hikes are starting to show in the data
Here's an observation from our business reporter Gareth Hutchens:
This is interesting. See in his first graph how it shows an increase in interest on dwellings? That's because of the RBA's interest rate hikes. They're starting to show up in this data
By Shiloh Payne
Chalmers says it's not helpful to personalise the RBA's decisions
Here's the latest from ABC reporter Nicole Hegarty:
The Treasurer says it's not helpful to over personalise the decisions of the Reserve Bank.
The comments follow growing pressure on the Reserve Bank Governor after he previously suggested interest rates would not begin to rise until 2024.
Greens senator Nick McKim has called for the governor to be sacked arguing he "effectively induced a lot of Australians into taking on massive debt levels."
"People borrowed significant amounts of money to purchase a house or a property in the expectation that he would stick to his word and not put interest rates up until 2024," Senator McKim said.
"They're going up through the roof now. This is going to send some households to the wall and there has to be some accountability in the system."
Nationals senator Matt Canavan has backed that call.
"I think this RBA governor should have gone when he promised to not raise rates until 2024 and now he's broken that promise five times," he said.
Treasurer Jim Chalmers said he was not interested in second guessing the governor.
"It's not for me to second guess the decisions taken by the independent Governor of the Reserve Bank," he said.
"I don't think it's helpful to associate some of the difficult decisions that the Reserve Bank has to make, to over personalise them.
"He is accountable for his words and actions and he's capable of defending them and he has been doing that.
"He has publicly said a number of times now that the economy recovered in a different way than he anticipated, and he's put his hand up for that."
By Shiloh Payne
What does this mean for inflation?
What does this mean for inflation?
- Interested
We've heard a lot about inflation in the last few monthss, but how do these new figures tie in?
Gareth Hutchens explains:
It shows that, in the June quarter, households were still very happy to spend money.
The Bureau of Statistics says household spending was very strong, and it was driven by spending on discretionary services.
That word, “discretionary,” is really important.
It refers to spending on services that people didn’t actually need.
The Reserve Bank wants people to stop spending so much money so it can drag inflation back down, so spending on discretionary services obviously runs counter to that goal.
But remember, this data is showing us how people were spending in the June quarter.
As the rest of this year rolls on, the RBA will be wanting to see people spending less on some things.
By Shiloh Payne
Pressures will have implications on the budget, Chalmers says
There are some substantial short, medium and long-term pressures on the upcoming budget, Treasurer Jim Chalmers says.
"We've got the higher cost of servicing the debt that we've inherited," he says.
"We've got additional COVID-related spending and hidden cost blow-outs in that area."
"We've got significant spending growth in areas like the NDIS, aged care, health care and defence as well.
"And all of that, obviously, has implications for our budget."
By Shiloh Payne
Did our economy grow because prices went up?
They say our economy grew, but isn’t that because it was more expensive?
- Coffee Maker
Hi there,
Here's Gareth Hutchens to explain:
Not exactly.
You’re thinking of the prices of goods and services that have been rising so quickly (which is causing inflation).
When economists talk about growth, they’re talking about the amount of economic activity that’s taking place in the economy, and if there’s been more of it recently.
So conceptually, you can break things down into two parts.
On one hand, you have the amount of goods and services that are being produced, and on the other hand, you have the prices that are being charged for those goods and services.
So, the level of economic activity increased in the last three months, but prices also increased.
They’re linked, but they’re two different things.
And two of the main drivers of economic growth in the June quarter was household consumption and exports.
By Shiloh Payne
Commodity prices have come off their peaks, Chalmers says
High commodity prices have led to record-high terms of trade in the quarter, but Jim Chalmers says we can't rely on these high prices persisting.
"Just one example since the end of the June quarter, the iron ore price, the spot price has come off 19% in the couple of months since the end of the quarter that we're talking about today."
By Shiloh Payne
Now to your questions
Will these figures include a (comparable) inflation number to see if the RBA jacking up rates is doing anything useful? (Accepting that there are a bunch of other factors involved so pinning any change on one factor alone is impossible at best)
- Ben
Hey Ben,
Here's our business reporter Gareth Hutchens to answer your question:
Let’s start at the beginning.
What is GDP?
It’s a single number that has come to embody a huge amount of importance, far beyond what its creators wanted. In fact, is creators warned peoplenotto give it the kind of importance it has today, but we’ll have to leave that for another day.
GDP stands for “gross domestic product.”
In plain English, it’s the total amount of goods and services that were produced by Australia in a specific period.
You can count GDP in a few ways, but one of the main reasons why we count it is to know how muchmoneywe’ve made from our recent economic activity. The more money we have, it’s assumed, the greater the chances that our material standard of living could improve too, if we spend that money wisely.
Now, when the number for the quarterly GDP is published, it’s useful to remember that it’sbackward looking.
It’s telling us how much economic activity we’ve done in the recentpast.
So, our economy increased by 0.9 per cent in the June quarter, and by 3.6 per cent compared to last year’s June quarter.
But that’s why these numbers won’t show any impact from the Reserve Bank’s interest rate increases.
Economists say it usually takes around six months for an increase in interest rates to show up in this kind of data.
And even though the RBA has been jamming the breaks on dramatically, RBA officials believe there are enough households in Australia with so much money stashed away in savings that those households will be able to keep spending their way through these rate rises for a while.
So, we won’t be seeing a significant slow-down in GDP for ages.
By Shiloh Payne
What has happened since these figures were recorded?
Jim Chalmers says there have been a number of shifting factors which upcoming figures will highlight, but the June quarter ones don't.
"We've seen a 1.5 per cent increase in interest rates, households are paying more for their energy bills," he says.
"Prices are expected to increase further before they come down and you all know that Treasury is forecasting CPI to peak at 7.75 per cent towards the end of the year.
"We've also seen a deterioration in the global situation.
"We've got those global supply chain disruptions and capacity constraints in the global economy obviously, but also here at home and that's putting pressure on our economy as well."
By Shiloh Payne
Chalmers: Real wages are still falling
Jim Chalmers says disposable incomes have fallen for a third quarter in a row.
"We saw company profits reach record highs as a percentage of GDP, but real household disposal incomes fell for the third consecutive quarter by 0.5 per cent in the June quarter," he says.
"While there are some welcome and encouraging science that wages are starting to pick up, there is no significant measure of wages growth that tells us anything other than real wages are still falling given the high and rising inflation that we confront in our economy."
By Shiloh Payne
Pressures have grown since this data, Jim Chalmers says
Jim Chalmers points out that it's been more than two months since this data was recorded.
"It's a solid outcome, but it doesn't tell the full story about our economy," Chalmers says.
"Some of the pressures on [Australians] and on our supply chains have grown and that's been a consequence of rising interest rates, a deteriorating global situation and of course high and rising inflation."
"Which is primarily but not exclusively global, and has some domestic elements to it as well as the Reserve Bank talked about yesterday."
By Shiloh Payne
Jim Chalmers is speaking at a press conference
Federal Treasurer Jim Chalmers says the national accounts reflect "an economy which is rebounding from the disruption of the pandemic".
But he says it's still being held back by capacity restraints, skills shortages and declining real wages.
By Shiloh Payne
A closer look at household savings
Sean Crick, head of National Accounts at the ABS, says households are continuing to save but at a declining rate over the past three quarters.
"While the 8.7 per cent household saving ratio was the lowest since the start of the COVID-19 pandemic, it remains above pre-pandemic levels," he says.
Here are some other interesting stats:
- Strength in compensation of employees (up 2.4 per cent) drove a 1.0 per cent increase in household GDP.
- The number of employed people rose 0.9 per cent over the quarter, driven by growth in full-time employment (up 2.3 per cent).
By Shiloh Payne
Rises in household spending and exports drove growth in the June quarter
The ABS head of National Accounts Sean Crick says the economic growth follows a contraction in the September quarter.
Mr Crick said reopened borders and a gap between COVID waves saw household spending jump 2.2 per cent in the quarter, driven by a 37.3 per cent surge in transport services and 8.8 per cent rise in spending at hotels, cafes and restaurants.
"Households increased spending on domestic and international travel as COVID restrictions further eased and international borders remained open," he observed.
"While spending on transport grew strongly, households were still only spending two-thirds of what they did pre-pandemic."
- You can continue reading this story from business reporters Michael Janda and Rachel Puppazoni with the link below.
