Making a point: RBA governor Michele Bullock speaks at a forum in Melbourne. The central bank’s latest staff forecasts predict the economic expansion will ease to 1.5% by the end of the year before picking up to 2% in late 2024. — Bloomberg
SYDNEY: Australia’s economy surprisingly slowed sharply in the three months through September as consumers hunkered down in the face of rising borrowing costs while trade detracted from growth.Gross domestic product (GDP) advanced 0.2% from the prior quarter, slower than economists’ estimates of a 0.5% gain, Australian Bureau of Statistics (ABS) data showed yesterday.
A year earlier, the economy grew 2.1% from a downward revised 2%.
“Government spending and capital investment were the main drivers of GDP growth this quarter,” Katherine Keenan, ABS head of national accounts, said in a statement. “Household spending was flat in the September quarter.”
The Australian dollar and government bond yields were little changed.
With annual growth slowing from a decade-average of 2.4%, the data are likely to ease concerns about demand-driven inflation pressures.
That suggests the Reserve Bank of Australia (RBA) can remain in a holding pattern for a little while in order to assess the economy.
The RBA forecasts a further slowdown in response to its 4.25 percentage points of rate hikes since May 2022.
The latest staff forecasts predict the economic expansion will ease to 1.5% by the end of the year before picking up to 2% in late 2024.
Bloomberg Economics expects growth to remain subdued as the cumulative impact of higher rates dampens household demand and housing-related activity.
Australian households are already facing a squeeze, with yesterday’s data showing the savings ratio declined to the lowest level since 2007.
It slumped to 1.1%, the eighth straight quarterly decline, from a downward revised 2.8%.
“Increased interest paid on home loans and inflationary pressure on households” were likely factors behind the fall in the household savings ratio, the ABS’ Keenan said.
Household spending was flat in the third quarter, while government expenditure jumped 1.1%, adding 0.2 percentage points to GDP.
The figures follow the RBA’s decision to leave rates unchanged at a 12-year high of 4.35% at its last meeting of the year on Tuesday.
The cautious approach underscored a desire to hang on to some of the employment gains made during the pandemic.
Even so, economists ascribe about a 40% probability of a recession over the next 12 months.
“Our concern remains that the RBA has tightened more than necessary, with a high risk of recession next year,” Shane Oliver, chief economist at AMP Ltd said ahead of the data.
“The key risk remains consumer spending, where various indicators continue to point down.”
Most economists said the RBA concluded its tightening campaign, though they acknowledged the risk of another hike early next year.
By comparison, financial markets expect the Federal Reserve to begin easing next year, while bets on rate cuts in Europe, New Zealand, and the United Kingdom have also gained momentum.
“We expect to see some further moderation in annual growth over the year ahead,” Treasurer Jim Chalmers said.
“In these difficult times, households are under acute pressure from the cost of living and the burden of higher interest rates.” — Bloomberg
