The Australian economy expanded by 0.9% in the June quarter, meeting market expectations. A resilient household sector defied headwinds that included a third consecutive quarter of falling real incomes, rising inflation and the start of the RBA rate hiking cycle, lifting consumption by 2.2%q/q to drive economic growth in the quarter. Real GDP increased by 3.6% through the year and was now 5.5% higher than pre-Covid levels.
Momentum was sustained in household consumption as the full reopening of the international border supported services spending. Inbound tourism, as well as a rebound in resources and rural goods production from weather-related disruptions earlier in the year, led to a sizeable contribution to growth from net exports. Business investment contributed modestly to growth (0.1ppt), with equipment spending finding strong momentum over the first half of the year (7.2%) on the easing of supply chain pressures.
Weighing most heavily growth was inventories (-1.2ppts) following a strong period of rebuilding over the past couple of quarters. Dwelling investment was also a headwind (-0.1ppt) as supply constraints in the availability of materials and labour and La Nina held back progress in working through what is a very substantial pipeline.
The main theme in the economy in the June quarter was the resilience of consumers as household consumption lifted by 2.2%. Although high inflation caused real disposable incomes to fall for the third quarter in sucession and the RBA lifted the cash rate by 75bps over May and June, demand still advanced. These forces saw households reduce their rate of saving from 11.1% to 8.7% over the quarter, but that is still well above long-run averages. Accumulated savings over the first year of the pandemic (in the order of $250bn) and a strong labour market continue to support household spending.
The easing of Covid restrictions and the reopening of the international border continues to see consumption patterns rotating back to services categroies (3.6%q/q) from goods (-0.1%q/q). Transport services rose 37.3%q/q on the wider resumption of travel, generating an associated boost for hotels, cafes and restaurants (8.8%q/q), while recreation and culture services remained robust (3.6%q/q). Going against the broader weakness for goods-related demand is clothing and footwear (3.7%q/q), consistent with more Australians getting out and about.
The other main highlight in Q2's national accounts was the surge in national income from elevated commodity prices. Nominal GDP lifted by 4.3% in the quarter and by 12.1% over the year, boosted by a terms of trade that has accelertaed to a record high level. The rise in nominal GDP compares to much smaller rises in output (3.6%) and hours worked (2%) over the past year.
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