Australia economy remains weak on household spending squeeze
AUSTRALIA’S economy extended a streak of subdued growth in the first three months of the year as elevated interest rates and cost of living pressures weighed on households.
Gross domestic product advanced 0.1 per cent from an upwardly revised 0.3 per cent in the prior quarter and compared with economists’ forecasts of 0.2 per cent, Australian Bureau of Statistics (ABS) data showed on Wednesday (Jun 5). From a year earlier, the economy grew 1.1 per cent, below estimates of 1.2 per cent.
The annual result was the weakest, outside the pandemic, since the first quarter of 1992, when Australia was just emerging from recession, and compares with a decade average of 2.4 per cent. The slowdown will likely increase pressure on the Reserve Bank of Australia (RBA) to begin an easing cycle after it held rates unchanged at 4.35 per cent at its past four meetings.
Governor Michele Bullock reiterated earlier Wednesday that the RBA remains data-driven and is not ruling anything in or out. She predicted GDP would be “low”, adding that household spending in the economy is “very, very weak”.
The Australian dollar was steady at around 66.50 US cents, while yields held an earlier decline as money markets finessed expectations the RBA may cut rates this year. Money markets maintained pricing for a roughly one-third chance of an easing by December, according to swaps data compiled by Bloomberg.
The report showed household spending rose 0.4 per cent, while the savings ratio slid to 0.9 per cent from a downwardly revised 1.6 per cent.
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Government expenditure added 0.2 percentage point to GDP. The outlook for public demand remains firm, economists said, with extra spending earmarked in the budget expected to flow over coming financial years. There also remains a large pipeline of public infrastructure projects underway.
“Private investment fell by 0.8 per cent driven by a decline of 4.3 per cent in non-dwelling investment,” Katherine Keenan, head of national accounts at the ABS, said. “This was due to a reduction in mining investment as well as a reduction in the number of small to medium building projects under construction.”
Bloomberg Economics expects overall growth to remain subdued, as sluggish consumer spending and weaker residential construction drag on activity.
The RBA predicts annual economic growth will trough at 1.2 per cent in the middle of this year, before regaining momentum. Most economists expect the RBA will begin its easing cycle later this year.
Today’s GDP data also showed:
- Strong population growth saw GDP per capita fall 0.4 per cent, extending recent declines.
- Inventories climbed as imports of consumption goods such as food, clothing, electrical items and cars jumped.
- Services imports rose 0.7 per cent, driven by transport services, while outbound tourism saw a second quarterly fall. BLOOMBERG
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