Growth is there but so is the pain

Fear of recession fades

The risk of a recession in Australia dropped dramatically this week as new data showed the economy continues to grow slightly, but that won’t ease the pressure on a large chunk of households.

The official Bureau of Statistics numbers put economic growth at 0.2 per cent for the final three months of calendar 2023, and a lacklustre 1.5 per cent for the year.

Despite continuing weakness, we are not even halfway to a recession, which is often defined as two straight quarters of negative gross domestic product (GDP).

And unless something disastrous happens in the current March quarter, we should avoid a GDP fall again – partially thanks to the leap year delivering an extra working day on February 29, which KPMG said would add about $6.6bn to the economy.

“This 1.1 per cent kicker to quarterly GDP should be enough to ensure that the March quarter will not fall into negative territory … we aren’t called the lucky country for nothing,” said KPMG chief economist Brendan Rynne.

However, many consumers and businesses won’t be feeling lucky as they battle high mortgage repayments – up 62 per cent since May 22 thanks to 13 Reserve Bank interest rate rises – weak retail sales, rising insolvencies and surging living costs that have outpaced wage increases for almost two years.

For them, it already feels like a recession, especially if they do not have solid job security as the jobless rate starts to rise.

On the other side of the fence are Aussies who own their own homes and have piles of cash in the bank. They have benefited from the triple boost of rising home values, investment growth and higher interest paid on their deposits.

They’re still spending, even though they might be cutting back a little. The Bureau of Statistics said we were eating at home more, with food spending up 0.9 per cent for the quarter but spending at pubs dropping off.

Total discretionary spending by households fell 1.6 per cent over the year, the ABS said.

While Australia is avoiding a technical recession, we are well into a per capita recession – which is falling economic growth per head of population.

“Strong population growth saw GDP per capita fall 1 per cent over the year,” the ABS said.

IG analyst Tony Sycamore said December was the fourth consecutive quarterly fall in per capita GDP, and showed that high interest rates were hurting the economy.

“We expect that softer inflation, cooling labour markets and slower growth will see the RBA remove its tightening bias in June before cutting rates by 25 basis points in August and November 2024,” he said.

Mr Rynne said Wednesday’s “very weak” numbers would have been negative 0.2 per cent if imports had stayed flat in the December quarter, and the weakness was likely to continue.

“The RBA might reduce the cash rate sooner and faster than envisaged, though not later this month,” he said.