Australia’s economic growth disappoints, as economy goes backwards per person over the past year

Australia’s economic growth disappoints, as economy goes backwards per person over the past year
  • PublishedDecember 6, 2023

Economists had generally expected the economy to expand by about 0.4 per cent for the quarter and 1.8 per cent over the past year, according to a Refinitiv survey.

However, on a per capita basis, Australia’s economic output slumped 0.5 per cent in the September quarter and fell 0.3 per cent over the past year.

Households bore the brunt of the economic slowdown as higher mortgage interest rates saw consumer spending remain flat during the quarter and savings rates fall to near 16-year lows of just 1.1 per cent.

“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,” Katherine Keenan, the ABS head of National Accounts, noted.

“Increased interest paid on home loans and inflationary pressure on households were also likely factors behind the fall in the household savings ratio.”

Income payable by households jumped 27.9 per cent over the past year — the biggest increase since September 1977 — due to those surging mortgage repayments and increasing income tax bills.

Economy ‘hit the wall’ from July

Westpac senior economist Andrew Hanlan said the data showed Australian households and the economy their spending underpins “hit the wall”.

“The Australian economy almost came to a stand still in the September quarter, with output up a very weak 0.2 per cent,” he said.

“Strikingly, consumer spending stalled, with a flat result and a decline in per capita terms of -0.6 per cent [for the] quarter as real disposable income collapsed, contracting 1.3 per cent [for the] quarter, -4.3 per cent [for the] year.”

Mr Hassan said consumption would have been even worse had it not been for a COVID-related backlog in new car deliveries.

“The detail showed a much weaker picture on services which look to have contracted about 1 per cent [for the] quarter on a combined basis,” he observed.

“With retail components flat and vehicle operations down in the quarter, the offset came from a big 13 per cent surge in vehicle spend — which is likely to be a temporary lift as backlogged orders clear.”

JP Morgan’s Ben Jarman was a little more upbeat, arguing that the annual GDP growth rate is in line with RBA forecasts and noting that higher-income households will get a tax break from July 1 next year.

“Tax as a share of income has been a consistent headwind to spending, which will be alleviated from mid-24 as the Stage 3 personal tax cuts land,” he wrote.

However, the broadest measure of economy-wide wages — compensation of employees, which includes the effect of additional workers as well as pay rises — jumped 2.6 per cent over the quarter.

A turnaround in productivity, which grew 0.9 per cent, also meant real unit labour costs rose by 1.2 per cent — less than half the previous quarter’s rate — easing wage-related inflationary concerns.

Ms Keenan also noted that much of a 1.1 per cent quarterly increase in government expenditure was for the benefit of households.

“The growth in government expenditure was driven by social benefits to households, including the Energy Bill Relief Fund rebates, and extra payments for childcare, aged care and pharmaceutical products,” she said.

Rate rise bets evaporate on GDP shock

Treasurer Jim Chalmers pounced on those numbers as evidence of the federal government’s assistance for households.

A close up on Jim smiling.
Jim Chalmers is highlighting the positives in the latest National Accounts.(ABC News: Tobias Hunt)

“We know people are doing it very tough because of higher interest rates and international uncertainty, but welcome and encouraging progress is being made on the economy more broadly, even as it slows in expected ways,” Mr Chalmers noted in a statement.

“Inflation is moderating, wages are rising with two consecutive quarters of real growth, the gender pay gap is the smallest it’s ever been, unemployment has a three in front of it with faster jobs growth since we were elected than in any major advanced economy, we’ve delivered the first surplus in 15 years and much smaller forecast deficits in the coming years mean much less debt and tens of billions of dollars saved in interest costs.”

The increase in public spending added 0.2 percentage points to the quarterly growth number, while investment (much of it from the public sector) added a further 0.2 percentage points.

Without those contributions, the economy likely would have gone backwards last quarter.

A stockpile of iron ore at mine
Commodities were stockpiled in the September quarter as Chinese demand eased.(Supplied: Kimberley Metals Group)

A fall in mining exports caused the sector to build up inventories waiting to be shipped, which added 0.4 percentage points to growth, without which the economy would have retreated.

Those inventories will need to be sold at some point, detracting from future growth.

IG market analyst Tony Sycamore said market betting had flipped from the risk of a further rate hike to the likelihood of rate cuts.

“The rates market sees the RBA’s peak terminal rate at 4.35 per cent,” he noted.

“There is now a 50 per cent chance of a 25-basis-point rate cut by June next year and a full 25-basis-point cut priced for November 2024 — exactly 12 months after the RBA delivered its last rate hike.”


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