Australian GDP growth matched expectations printing at 0.2% in the June quarter, the same growth rate as the previous two quarters. Growth through the year eased from 1.1% to 1%, the slowest pace outside the Covid period since the recovery from the early 1990s recession. Annual GDP has been running below most official estimates of trend or potential growth (around 2.5%) for more than a year now. Headwinds to growth have come from offshore - global slowdown and geopolitical tensions - and at home with higher interest rates and cost-of-living pressures biting.
With the economy feeling the effects of higher interest rates, growth in private demand slowed to the point of drying up in Q2 (0%q/q, 0.8%Y/Y). Consumption was outright weak - real household spending fell by 0.2%q/q as discretionary-related purchases were cut back meaningfully (-1.1%) - while dwelling investment (0.1%q/q) and business investment (0.1%) were little more than flat.
By contrast, public demand has been a counter-cyclical support to the economy (0.8%q/q, 3.4%Y/Y), with governments ramping up cost-of-living support measures and as the rollout of the vast pipeline of infrastructure projects has continued.
Today's National Accounts should have limited RBA implications, with the Bank only recently forecasting growth to come in at 0.9%Y/Y in Q2. Policymakers at the central bank have countered calls for tighter policy to more quickly curb inflation by highlighting that per capita output (growth adjusted for population increase) is weak, something that continued in Q2 (-0.4%q/q, -1.5%Y/Y).
However, the RBA has been resistant to market pricing for rate cuts to start later this year due to an expected gradual return of inflation to the 2-3% target band. Going back to the tenure of Governor Lowe and then carried on by current Governor Bullock, the RBA has consistently spoken of the need for productivity growth to rebound to deliver sustainable 2-3% inflation. Today's National Accounts showed a decline in productivity in Q2 (-0.8%q/q) - a largely unimportant statistic - however, the annual pace of 0.4% is probably weaker than the RBA would like to see with the pandemic moving further into the rear vision mirror.
More to come.
