Expectations for a pick-up in Australian economic growth fell short of the mark as September quarter real GDP lifted by 0.3% against 0.5% forecast. Year-ended growth has moderated further from 1.0% to 0.8% - a low outside the pandemic since the early 1990s downturn. Household consumption was disappointingly flat (0%q/q) despite fiscal support measures and slower inflation boosting real incomes. Unless growth can accelerate in the final quarter of 2024, the RBA's forecast for 1.5% GDP growth by year-end is at risk. A February rate cut cannot be ruled out, particularly if the quarterly CPI data for Q4 (due late January) qualifies as a 'good' report that RBA Governor Bullock recently spoke about.
The effects of higher interest rates and cost-of-living pressures have been major headwinds to growth in Australia. In response, private demand (0.1%q/q) - including household spending, residential construction and business investment - has slowed to annual growth of 0.7%, down from 2.5% a year ago. Public demand (2.2%q/q) has held the keys to growth over the past year, expanding at a robust 4.1% pace. Government spending has ramped - due to energy bill rebates and spending on health and aged care programs - while work on the large pipeline of infrastructure projects has also been a key support. Net exports (-1ppt) and inventories (-0.1ppt) have weighed on growth over the past year.
Rising real incomes from slower inflation and fiscal support (Stage 3 tax cuts and energy bill rebates) were unable to generate a meaningful bounce in household consumption, the key dynamic in Q3. Real disposable income growth lifted 0.8% to a 2.4%Y/Y pace - its fastest in more than 2 years - but household consumption was flat in Q3 (after a downwardly revised 0.3% fall in Q2) and annual growth was unchanged at a weak 0.4%. Weakness in discretionary-related consumption (0.1%q/q, -1.1%Y/Y) suggests more time is needed for the real income story to gain traction; RBA rate cuts could also be a missing ingredient to spur households. A positive is that historical revisions have lifted the saving rate materially, which rose from 2.4% to 3.2% in Q3 - a high since Q4 2022, indicating households have more scope to spend than earlier estimated.
More to come.
