Aus­tralia's GDP growth slows to 2.8% as weaker spend­ing hits econ­omy

The Guardian Australia - - News / World News - Gareth Hutchens

Aus­tralia’s econ­omy grew much more slowly than ex­pected in the past three months, drag­ging the an­nual growth rate down no­tice­ably, as weaker house­hold spend­ing hit the na­tional ac­counts.

The econ­omy has clearly lost mo­men­tum as prop­erty prices con­tinue to slide in Sydney and Melbourne, amid tighter lend­ing stan­dards and credit con­di­tions.

The im­pact of the na­tional drought has also started to hit the na­tional ac­counts, with the agri­cul­tural, forestry and fish­ing in­dus­try sec­tor reg­is­ter­ing neg­a­tive growth of 1.6% for the quar­ter.

Bureau of Sta­tis­tics fig­ures show na­tional out­put ex­panded by 0.3% in the Septem­ber quar­ter – the slow­est quar­terly growth rate in two years – well be­low the mar­ket forecast of 0.6%.

It means Aus­tralia’s econ­omy is grow­ing at an an­nual rate of 2.8%, down from 3.4% in the pre­vi­ous quar­ter.

Just one day ago, the Re­serve Bank was say­ing its cen­tral sce­nario was for GDP to grow by an av­er­age 3.5% over this year and next, be­fore slow­ing in 2020. That sce­nario may have to be re­vised down now.

It cre­ates a com­pli­cated sit­u­a­tion for the Mor­ri­son gov­ern­ment.

The un­em­ploy­ment rate is near a six-year low, at 5.1%, and wages growth has picked up slightly in re­cent months, though it is still anaemic. Crude oil prices have also fallen, which will feed through to lower in­fla­tion.

But house­holds are un­likely to re­spond by in­creas­ing con­sump­tion be­cause house­hold debt lev­els are al­ready ex­treme and large falls in house prices have re­duced house­hold wealth. House­holds are likely to want to start sav­ing more, rather than spend­ing more, so con­sump­tion will stop be­ing a key driver of growth.

Spend­ing on dis­cre­tionary items al­ready slowed dur­ing the Septem­ber quar­ter, and the sub­dued growth in gross dis­pos­able in­come re­sulted in the low­est house­hold sav­ing ra­tio (2.4%) since De­cem­ber 2007.

“With house­hold debt as a pro­por­tion of an­nu­alised house­hold dis­pos­able in­come al­ready at an all-time high of around 190%, com­bined with tighter lend­ing con­trols be­ing im­ple­mented by the banks, this source of fund­ing for house­hold con­sump­tion is … likely to dry up,” KPMG’s chief economist, Bren­dan Rynne, said.

Shane Oliver, the chief economist of AMP Cap­i­tal, said to­day’s data had con­vinced him the Re­serve Bank’s next move on in­ter­est rates would be a rate cut, rather than an in­crease.

“How­ever, with the RBA still see­ing the next move as be­ing up, it will take them a while to change their think­ing so we don’t see rates be­ing cut un­til sec­ond half next year,” Oliver wrote to clients on Wed­nes­day.

“When it does start cut­ting, the RBA will likely stick to 0.25% in­cre­ments and, since rate moves are a bit like cock­roaches, there is likely to be more than one. This, in turn, will ul­ti­mately weigh on the Aus­tralian dol­lar.”

The trea­surer, Josh Fry­den­berg, said the gov­ern­ment would still de­liver a bud­get sur­plus next year, and it was im­por­tant to re­mem­ber the econ­omy was still grow­ing strongly.

But he said vot­ers would have to wait un­til the midyear bud­get up­date on 17 De­cem­ber to see how data would af­fect the bud­get fore­casts.

He told par­lia­ment the econ­omy was still grow­ing strongly.

“At 2.8%, it is faster than the OECD av­er­age, and faster than any G7 coun­try ex­cept the United States,” he said. “Over 1.1 mil­lion new jobs are be­ing cre­ated. We’re one of only 10 na­tions in the world to have a AAA credit rat­ing from the three lead­ing credit rat­ing agen­cies. Un­em­ploy­ment has come down to 5%, the low­est level since 2012.”

Bren­don Thorne/Getty Images Pho­to­graph:

Aus­tralian GDP: na­tional out­put grew 0.3% in three months to the end of Septem­ber, while year-on-year growth was 2.8%.

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