Australia’s economy slowed more than expected in the September quarter with consumers drawing on savings to shore up spending as property services shrank.
The nation’s GDP expanded at a quarterly rate of 0.6% in the July-September period, slower than the 0.7% expected by some economists and the 0.9% pace in the June quarter. The annual rate of 5.9% was a rebound from a low base a year earlier when about half the economy was in Covid-related lockdowns.
Consumer spending, supported by rising wages and people saving less, powered growth in the September quarter. Household spending rose 1.1%, contributing 0.6 percentage points of GDP growth, the ABS said.
The saving rates sank for a fourth straight quarter, dropping to 6.9% from 8.3%, to move back towards pre-pandemic levels.
The treasurer, Jim Chalmers, said the Australian economy was “performing solidly in the face of steep headwinds from overseas as well as considerable and compounding pressures on Australian families and businesses”.
“Despite these solid headline figures for September, we know Australian households are feeling the strain of the combined impact of the global energy crisis, cost-of-living pressures and rising interest rates,” Chalmers said.
Wednesday’s national accounts figures offer the widest picture of the state of the economy as it began to absorb higher energy and borrowing costs. By the end of September, the Reserve Bank had already raised interest rates five times – or 225 basis points – and as of Tuesday, it had added another 75 basis points to the hikes.
While quarterly numbers tend to fluctuate, most economists anticipate Australia’s economy will slow sharply from the December quarter onwards but at least avoid a recession that looks likely to hit some big economies including the US and the UK.
The RBA forecasts annual GDP growth to average 4% for 2022 as a whole before easing to 2% next year and 1.5% in 2024.
For the September quarter, compensation of employees increased 3.2%, the strongest rise since December quarter 2006, the ABS said. “Tight labour market conditions, with the unemployment rate being at a multi-decade low, and job vacancies at high levels, were key to the rise.”
The Fair Work Commission’s 2021-22 minimum wage decision, and the increase in the superannuation guarantee (10.0% to 10.5% from 1 July 2022), also contributed to this growth, the ABS said.
Catherine Birch, a senior ANZ economist, said spending for discretionary goods and services was up 1.8% for the quarter alone, but mostly because people tapped into savings.
Of more note, though, were movements in prices, within inflation’; “ uncomfortably high”, she said.
“The data today and statement from the RBA yesterday support our view that more cash rate hikes will be needed in 2023. Our pick is a peak of 3.85% by May,” she said.
Sarah Hunter, a KPMG senior economist, said slumping activity in the property market contributed as borrowing costs rose to slower GDP growth. Ownership transfer costs that captures real estate agents, conveyancers and other services fell 11.2% for the quarter.
“Looking ahead this category is likely to dip again in the December quarter,” Hunter said. “[B]ut the high frequency data suggest that activity is holding up relatively well, with the volume of sales still comfortably above pre-Covid levels.”
Andrew Hanlan, a senior Westpac economist, cited real estate as the key surprise in the national accounts.
The ownership transfer cost plunge alone subtracted 0.2 percentage points from GDP, he said, adding the drop provided more evidence the Australian economy was in transition.
Another drag on the economy was a smaller trade surplus for the quarter. The terms of trade – how export prices compare with imports – fell 6.6%, the largest fall since June quarter 2009.
Weaker demand for some mining commodities, particularly iron ore, drove export prices down, the ABS said. Falling prices drove a 7.1% dip in the mining operating surplus in September to $78bn.
Overall business investment grew by 0.7%, with a lift in construction work outweighing a 3.0% decline in equipment spending, Westpac said.
By contrast, public sector demand was “cresting at a high level”, increasing only 0.2% for the quarter. Government outlays surged during the pandemic and continued to taper off.
This story was updated on 7 December 2022 to remove a statement that the September quarter’s 5.9% GDP growth pace was the highest this century. According the ABS, the June 2021 quarter’s rebound was the highest at 9.8%.