Economy slow-grow zone Spending subdued as shoppers bank tax cuts
THE economy expanded by an underwhelming 0.4 per cent in the September quarter as the mining sector continued to fire but consumers apparently pocketed tax offsets instead of spending them.
The quarterly increase undershot market consensus of 0.5 per cent growth as domestic final demand remained subdued – contributing just 0.2 percentage points – while annual growth was a below-trend 1.7 per cent despite improving on the previous quarter’s 10year low.
BIS Oxford economist Dr
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Sarah Hunter said the chronic weakness in household spending was made very clear in yesterday’s figures, with private consumption increasing by just 0.1 per cent.
Growth in household gross disposable income outpaced subdued household final consumption leading to a sharp 4.8 per cent rise in the household saving ratio.
“(There is) no sign yet that the increase in tax offsets and rate cuts are boosting household spending,” Dr Hunter (pictured) said. “Instead, households have chosen to save the additional disposable income from the higher tax offsets and lower mortgage interest payments.”
Yesterday’s data comes after the Reserve Bank opted to keep the cash rate on hold at a record low 0.75 per cent despite weak consumer spending and stagnant wage growth continuing to keep a lid on business investment, jobs and inflation. Economists suggested prior to the release of the data that a consensus growth result would mirror the RBA’s sentiment the economy had reached a “gentle turning point” after growth bottomed out during the previous quarter.
The economy had expanded by 0.5 per cent in the three months to June as annual growth slowed to a fresh postGFC low of 1.4 per cent.
Dr Hunter added that household income growth would only soften as the impact of the higher tax offsets dropped out of the calculation, with annual growth likely to remain at a subdued 2 per cent for the next year.
Ernst and Young’s Oceania chief economist Jo Masters said the figures indicated Australia can expect further rate cuts in 2020, while the prospect of quantitative easing will remain a talking point.
The nation’s mining sector helped prop up the September quarter result as it grew by 0.7 per cent on strong demand for iron ore, while coal production increased following maintenance in the previous quarter. The mining industry grew 7.4 per cent through the year.
Government spending was up 0.9 per cent and was the main contributor to growth in domestic final demand.