Australia economy buoyed by consumer spending, exports in Q2

Published Wed, Sep 7, 2022 · 11:53 AM

AUSTRALIA’S economy picked up speed in the June quarter as consumers kept spending and energy exports boomed, offering hope activity can weather sharply higher interest rates and cost-of-living pressures.

Data from the Australian Bureau of Statistics (ABS) on Wednesday (Sep 7) showed gross domestic product (GDP) rose 0.9 per cent in the second quarter, in line with forecasts and up on the first quarter’s 0.7 per cent rise.

Annual growth accelerated to 3.6 per cent as the lowest unemployment rate in almost 5 decades underpinned household incomes and spending.

Indeed, so resilient was the economy that the Reserve Bank of Australia (RBA) has had to embark on an uber-aggressive tightening campaign to try and cool activity and restrain runaway inflation.

The central bank on Tuesday raised its cash rate 50 basis points to a 7-year high of 2.35 per cent, bringing the total tightening since May to an eye-watering 225 basis points.

Markets are leaning towards another half-point hike in October, and for rates to reach as high as 3.85 per cent given inflation is running at a 21-year peak of 6.1 per cent and likely to top 7 per cent by Christmas.

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Inflation was widespread in the GDP report with its main price index jumping 6.9 per cent for the year, the fastest pace since 1988/89.

Compensation of employees, a proxy for wages, boasted the biggest gain since 2010 as firms were forced to pay to attract and retain staff amid an unemployment rate of just 3.4 per cent.

Consumers, however, were still not cowed and household spending added a meaty 1.1 percentage points to growth in the quarter. They have the means to keep shopping as the savings ratio dipped to 8.7 per cent, still well above pre-pandemic levels.

“Households increased spending on domestic and international travel as Covid restrictions further eased and international borders remained open,” said Sean Crick, head of National Accounts at the ABS.

“While spending on transport grew strongly, households were still only spending 2 thirds of what they did pre-pandemic.”

Australia’s miners were also flush with cash as a global scramble for energy boosted prices for coal and gas. Coal alone brought in more than A$100 billion in the year to June, helping exports contribute 1.1 percentage points to Q2 GDP.

All these dollars showed up in nominal GDP which surged 4.3 per cent in the quarter and a blistering 12.1 per cent for the year, taking output to a record A$2.3 trillion (S$2.2 trillion). REUTERS

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