Australia's September quarter National Accounts are scheduled for release next week (3/12). Growth in the domestic economy reaccelerated in the June quarter (0.6%) as household consumption turned back the clock with its strongest rise since late 2022. Encouragingly, this momentum looks to have continued in the September quarter, and the drivers of growth appear to have broadened. Real GDP growth of around 0.6%-0.8% is expected at this stage, with further data early next week to help shore up estimates. The Australian economy has been resilient to global and domestic headwinds, but longer-term growth prospects remain susceptible if weakness in productivity persists.
June quarter recap: Consumption revival drives growth
Renewed strength in household consumption drove GDP growth to 0.6% in the June quarter, lifting annual growth from 1.4% to 1.8%. Household consumption increased by 0.9% in the quarter (2%Y/Y) on the back of the fastest acceleration in discretionary spending (1.4%) in almost 3 years. Improving sentiment and rising real incomes appeared to be key factors.
Lower inflation, fiscal support (Stage 3 tax cuts and energy rebates), and RBA rate cuts had all contributed to the strongest pace of real income growth (4.2%Y/Y) in several years. Dwelling investment continued to make headway (0.4%), up 4.8% through the year. That helped to offset weakness in business investment (0.3%Y/Y) that has been impacted by economic uncertainty and cost pressures.
Led by household consumption, private demand (0.6%) remained the key driver of growth for a third straight quarter, with public demand (0.2%) continuing to slow. Public spending is still expanding solidly, but the investment pipeline has now peaked and is retracing as major projects reach completion or move towards later stages.
September quarter preview: Recovery broadens
Resilient growth outcomes have been evident in many advanced economies in Q3 amid trade and geopolitical uncertainties. Growth in the US was somewhat clouded by the government shutdown, but momentum through the first half of the year had been solid (0.8%). France and Germany drove the euro area to a slight uptick in Q3 growth (0.2%), but the UK slowed (0.1%). Declining exports saw growth contract in Japan (-0.4%). In China, trade underpinned growth (1.1%) as domestic demand weakened.
Domestically, the consumption-driven rebound looks to have continued - albeit at a slower pace. In volume terms, household spending (excluding tobacco) moderated to a 0.4% increase on a post-sales pullback. Households may have also felt the pinch from fading electricity rebates and the broader reacceleration in inflationary pressures. That said, the RBA cut the cash rate further in August, and the effects of the earlier cuts are still playing through.
This was notably evident in the housing market. Nationwide, housing prices were up more than 2% in the quarter to be more than 4% higher than a year earlier. Lending to the investor segment surged (17.6%) supported by demand for new and existing stock. Owner-occupier lending lifted solidly reaching 3½-year highs. After lagging in the upswing, residential construction activity rise at its fastest quarterly pace in almost 5 years. Business investment also found form elevating on strength in equipment investment.
Key dynamics in Q3
Household consumption — Slowed from the strong gain in the June quarter but the recovery continued. Spending on essentials (food and health) were the key drivers, in contrast to the discretionary-led growth in Q2.
Dwelling investment — Partial data indicated residential construction activity saw its fastest quarterly rise in several years. This was driven by accelerated activity in new home building, with support from alteration work.
Business investment — Accelerated sharply in Q3 and will contribute strongly to growth. Technology-driven investment in data centres was a key theme, and non-residential construction also picked up.
Public demand — Full details are due next week but public demand has been slowing over recent quarters. In Q3, public spending is likely to have again risen at a solid pace. Meanwhile, public investment looks to have rebounded from a couple of weaker quarters.
Inventories — Deducted slightly from growth in Q2 (-0.1ppt). Data for Q3 inventories will come to hand early next week.
Net exports — Coming off a near-flat contribution (0.1ppt) to quarterly growth in the previous quarter. Net exports look to have added modestly to growth in Q3, with non-monetary gold a key factor amid strong global demand. Further data is due next week.