Australian real GDP rose at its fastest quarterly pace in 2 years expanding by 0.6% in the December quarter of 2024, in line with market expectations. This lifted year-ended growth from 0.8% - a 30-year low outside of the Covid period - to 1.3%; growth at that pace is a little stronger than the RBA had forecast (1.1%) but is still well below estimates of trend growth (around 2.5%) - validating the Board's decision to dial back policy restriction with its February rate cut. The RBA forecasts growth to rise to a 2.4% pace through 2025. Improving signs around household consumption in Q4 will need to gather momentum if this outlook is to materialise.
Fourth quarter growth in real GDP came through at 0.6%, which as the chart below shows continued a sequence of progressively stronger growth outcomes as 2024 unfolded. To suggest this reflects a pick-up in underlying momentum in the economy would be a stretch. Public demand - driven by the electricity bill rebates and spending in the care economy as well as in defence - was the mainstay of growth last year amid patchiness elsewhere. Business investment plateaued, while residential construction continued to be held back by higher interest rates and capacity pressures that are proving very difficult to address. Inventories added modestly to growth in Q4, as did net exports. But the main story remains around households.
There were signs that the malaise caused by cost-of-living pressures and higher interest rates was easing in Q4 following the Stage 3 tax cuts and other cost-of-living measures. Slowing inflation has been another key factor, with real incomes rising (1.9%Y/Y) for the fourth quarter in succession. Supported by that backdrop, household consumption lifted by 0.4%q/q, rebounding from declines in Q2 (-0.2%) and Q3 (-0.1%). Consumption across all components of the basket increased for the first time since Q2 2023: goods up 0.6% and 0.3% for services, while essentials lifted 0.5% and discretionary spending increased 0.4%. Rising real incomes, a lift in the saving rate to 3.8% in Q4 - its highest since Q3 2022 - and the RBA's rate cut argue in favour of consumption improving further in the first quarter of 2025.
More analysis to come.
