The Australian economy expanded by 0.4% in the June quarter, in line with expectations and unchanged from Q1 after revisions. This was a resilient outcome considering household consumption (more than 50% of the economy) continued to slow amid cost of living pressures and higher interest rates. Weaker offshore growth dynamics also hit, reflected in the terms of trade falling 7.8% as commodity prices unwound, driving a 1.2% contraction in nominal GDP.
Real GDP increased by 2.1% through the year, underpinned by rapid post-pandemic population growth (2.4%). Reopened borders have also bolstered growth by facilitating the recovery in services exports, including tourism and education, adding more than 2ppts to GDP over the past year.
Household consumption growth almost stalled in Q2 (0.1%) and has slowed sharply over the past year (1.5%). With pressures on household budgets intensifying, discretionary consumption continues to weaken, falling 0.5%q/q as year-ended growth slowed to just 0.6%.
A strong labour market has supported household incomes, but the tax burden has increased alongside this, interest rates have risen sharply and inflation has been elevated. All told, real disposable income has fallen 3.2%Y/Y. That consumption at 1.5% is still positive in this environment speaks to the resilience of the consumer and their willingness to spend out of savings accumulated during the pandemic. Whether households are able to take this much further is an open question, with the saving rate in the June quarter declining to a 15-year low (3.2%).
Together with slowing household consumption, residential construction also remained weak in Q2 (-0.2%), albeit new home building saw a welcome lift (1.2%). However, private demand held up relatively well (0.5%) as business investment (2.1%q/q, 8%Y/Y) continued to defy the prevailing headwinds. This has been supported by eased supply chain pressures. As backlogged orders - particularly for vehicles and machinery - have been filled, inventory levels have declined, weighing on GDP (-1.1ppts in Q2). Public demand (1.2%q/q, 2.7%Y/Y) remains a growth support as progress on infrastructure projects gains momentum. Net exports (+0.8ppt) made the largest contribution to growth in Q2 as the recovery in domestic tourism and education services continued at pace.
More to come.
