Economy weakens as households stretched thin

Australia’s economy hit a wall in the September quarter, recording weaker-than-expected quarterly growth and sinking deeper into a per capita recession.

The 0.2 per cent lift in economic output in the three months to September marked a slowdown from the 0.4 per cent in the three months to June.

The result was also much lower than the 0.5 per cent quarterly expansion pencilled in by economists ahead of the Australian Bureau of Statistics’ quarterly national accounts release.

On an annual basis, gross domestic product as logged by the bureau lifted 2.1 per cent.

The nation also deepened its per capita recession, with GDP per capita falling 0.5 per cent after a 0.1 per cent decline in June.

ABS head of national accounts Katherine Keenan said growth had slowed over the course of the year.

“Government spending and capital investment were the main drivers of GDP growth this quarter,” she said.

Household spending was flat over the quarter, with the bureau noting that sustained cost of living pressures and higher interest rates – which push mortgage repayments higher – were taking a toll.

Ms Keenan said government benefits and rebates, including energy bill relief, was partly responsible for softer household spending.

These programs showed up in government expenditure, which rose 1.1 per cent, to be up from a 0.6 per cent lift in the June quarter.

The household saving ratio fell 1.1 per cent to its lowest level since 2007, in another sign of building financial pressures.

Treasurer Jim Chalmers said the household savings ratio was “one of the ways we know that people are doing it especially tough”.

“People in aggregate are saving a little bit, but no longer saving a lot,” he told reporters on Wednesday.

The quarterly economic health check follows the Reserve Bank’s decision to keep interest rates on hold at 4.35 per cent at the final board meeting of the year.

The central bank has been lifting interest rates to bring down still-high inflation, and aims to keep curbing inflation while keeping the economy growing and preserving gains in the labour market.

An improvement in GDP per hour worked, up 0.9 per cent over the quarter, will be welcomed by the central bank after it raised concerns about the nation’s sluggish productivity growth.

Dr Chalmers said a slowing economy was an expected consequence of higher interest rates and global uncertainty.

Yet the 0.2 per cent quarterly figure needed to be “put into perspective”, he said.

The treasurer noted Australia was making “welcome and encouraging” progress on inflation, shrinking the gender pay gap and showing ongoing resilience in the labour market.

Westpac senior economist Andrew Hanlon said the economy “almost came to a standstill” in the September quarter and slowed by more than was expected.

Consumer spending was the key surprise in the national accounts, he said.

“Overall, the update is a bleak one for households with incomes under intense pressure, diminished scope for support from savings and some temporary timing effects around vehicles likely to drop out of the spend profile,” he wrote in a note.

 

Poppy Johnston
(Australian Associated Press)

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