With people dipping into savings to shore up spending and a decline in property services, Australia’s economy slowed more than projected in the September quarter.
Growth in gross domestic product slowed to 0.6% from 0.9% in the previous quarter and 0.7% from the last June quarter. The 5.9% annual rate was an improvement over the prior year when about half of the economy was locked down due to Covid.
The new Springfield housing subdivision in Ipswich, Australia.
The rise in the third quarter of 2018 was driven by consumer spending buoyed by higher incomes and reduced savings. The ABS said that 0.6 percentage points boosted the GDP growth due to the increase in household expenditure of 1.1%.
For the fourth consecutive quarter, saving rates fell, this time to 6.9% from 8.3%, bringing them closer to where they were before the epidemic.
Despite “steep headwinds from outside as well as enormous and compounding challenges on Australian people and businesses,” the Australian economy is “doing strongly,” as the treasurer, Jim Chalmers, put it.
The combined effects of the global oil crisis, cost-of-living pressures, and rising interest rates are burdening Australian families, Chalmers said, despite the positive headline results for September.
Wednesday’s national accounts data provided the most comprehensive look at how the economy is adjusting to increasing energy and borrowing prices. Rates had already been lifted five times by the Reserve Bank by the end of September, for a total of 225 basis points, and another 75 basis points were added on Tuesday.
Quarter-to-quarter fluctuations aside, most analysts expect Australia’s economy to drop considerably beginning in the December quarter but at least avoid a recession that is certain to impact several large nations such as the United States and the United Kingdom.
According to the RBA, GDP growth is expected to average 4% in 2022, 2% in 2023, and 1.5% in 2024.
The ABS reported a 3.2% increase in remuneration for workers for the third quarter of 2016, the highest quarterly increase since the fourth quarter of 2006. The low unemployment rate and the vast number of available jobs contributed significantly to this wage increase.
The ABS further attributed this rise to the Fair Work Commission’s decision to raise the minimum wage from $20.20 to $21.70 for 2021–2022, as well as the increase in the superannuation guarantee from 10% to 10.5% as of 1 July 2022.
A senior ANZ economist, Catherine Birch, said that discretionary expenditure rose by 1.8% in the most recent quarter but that this increase was primarily driven by consumers spending money from their savings.
Price changes within inflation were more noteworthy, though; she described them as “uncomfortably high.”
Our forecast calls for more cash rate increases in 2023, and new data released today and a statement from the RBA yesterday both lend credence to that forecast. Our forecast calls for a high of 3.8 percent by May.
According to Sarah Hunter, a senior economist at KPMG, falling property market activity led to weaker GDP growth as borrowing rates climbed. In the most recent quarter, the total price of transferring ownership, which includes the fees of real estate brokers, conveyancers, and others, decreased by 11.2%.
According to Hunter, “going forwards, this segment is projected to decline again in the December quarter.” The number of sales is still well above pre-Covid levels, but the high-frequency data suggest that activity is holding up quite well.
According to senior Westpac economist Andrew Hanlan, the real estate market was the biggest shock to the national accounts.
He said that the decline in ownership transfer costs indicated that the Australian economy was in transition and that the drop harmed GDP by 0.2 percentage points.
A reduced trade surplus for the quarter was another drag on economic growth. Changes in terms of trade (the ratio of export prices to import prices) totaled 6.6%, the most significant quarterly drop since the second quarter of 2009.
The ABS said falling export prices resulted from decreased demand for several mining goods. Due to falling commodity prices, the mining industry’s surplus in September dropped by 7.1% to $78 billion.
Westpac reported a 0.7% increase in total business investment, with the growth attributable to the rise in construction projects offsetting a 3.0% drop in equipment spending.
On the other hand, demand from the public sector was “cresting at a high level” while growing by only 0.2% during the quarter. The government spent much during the outbreak, but those payments have slowed.
