- Australia's GDP grew by just 0.2% in the June quarter, marking the slowest pace of growth since the 1991 recession, outside of the Covid pandemic.
- Consumer spending fell by 0.2%, the largest drop outside of the pandemic since the GFC.
- The country remains in per-capita recession as GDP per capita contracted for the sixth quarter in a row, declining by 0.4%.
- Government expenditure rises 1.4%, keeping the economy from stagnating on the back of weak private spending.
- The annual household savings ratio is the worst in 18 years.
- Productivity is slower than the RBA would like, but overall the economy grew more than forecast over the 2024 financial year.
Data released by the Australian Bureau of Statistics on Wednesday showed that the quarterly gross domestic product (GDP) in the three months to June rose to a meagre 0.2% (seasonally adjusted, chain volume measure).
Throughout the year, the GDP climbed 1.0% in seasonally adjusted chain volume measures and 4.4% in current prices.
Barring the Covid-19 pandemic, the annual financial year growth was the lowest since FY 1991-92, when the country was just gradually recovering from the 1991 recession.
"The Australian economy grew for the eleventh consecutive quarter, although growth slowed over the 2023-24 financial year," ABS head of national accounts Katherine Keenan said.
Driving the sluggish growth was the 0.2% drop in consumer spending over the three months to June, the biggest quarterly drop outside of Covid since the global financial crisis.
The subdued private spending offset the gains from increased government spending, thus slowing the nation's economic expansion.
Beneath the headline figures, the GDP per capita contracted for the sixth quarter in a row, sinking by 0.4% as the population expanded at a much faster rate of 2.5%.
GDP per capita measures the growth of a nation by its population. While population growth contributes to the overall increase in GDP, a large figure shrinks the average per person.
This means every Aussie's share of output plunged 0.4% over the period, leaving the country knee-deep in per-capita recession for a year and a half now.
This is worse than per capita recessions recorded in the early 1970s and the early 1980s.
Productivity, measured by GDP per hour worked, plummeted 0.8% over the quarter, while real unit labour costs jumped 1.3% off the back of sustained, albeit slower, wage growth.
"Productivity has been weighed by weak mining output and strong public sector employment growth," NAB group chief economist Alan Oster noted.
This could weigh on interest rate decisions of the RBA, given it forecast 0.8% for the June quarter. Yet the annual GDP growth rate was 1.5%, higher than the RBA's forecast of 0.9%.
Households spend less on discretionary goods
Consumer spending continues to be weak despite disposable income stabilising for the third consecutive quarter, buoyed by a 1% increase in employee wages.
"Spending on many discretionary categories fell in the June quarter," Ms Keenan said.
"This followed a relatively strong result in the March quarter, which included a number of sporting, gambling, and music events."
ABS cited reduced air travel as the main driver stalling consumer spending growth.
Relative to the pace of the population increase, per capita spending declined 2% over the past year.
It doesn't appear that households are spending less to save more, with the savings ratio holding flat at 0.6% during the period.
The previous quarter was revised down from 0.9% by the ABS.
In annual terms, the savings ratio was 0.9%, the lowest since the 2006-07 financial year.
"Our estimates suggest that about half of the extra savings accumulated across the wider household sector during the Covid period have now been run down," Westpac senior economist Pat Bustamante said.
Rather than saving and spending on non-essentials, "It appears households are using this stabilisation in real incomes to buy essentials," he added.
However, the national accounts data revealed that Australians are also cutting back on their grocery spending, with food expenditures - an absolute essential - down 1%.
"We are seeing increasing signs that the weakness in consumer spending is spilling over into businesses, particularly those at the coalface of the consumer-led slowdown, with new business investment up just 0.1% in the June quarter, to be 2.2% higher in annual terms," Mr Bustamante noted.
Is government spending keeping inflation higher for longer?
Treasurer Jim Chalmers believes the Wednesday figures "justify" the government's economic plans.
Government expenditure rose 1.4% over the quarter, largely driven by increased spending in social benefits programs for health services.
"State and local expenditure also contributed to growth with a rise in employee expenses," Ms Keenan added.
Critics have claimed that the Albanese government's spending is potentially keeping inflation higher for longer, thus complicating RBA Governor Michele Bullock's efforts.
June quarter inflation landed at 3.8%, still well above the RBA's target range of 2-3%.
The Reserve Bank has been adamant about keeping the cash rate higher for longer to tame inflation, just as it's been reluctant to hike the rates over concerns of an economic downturn.
As it stands, the RBA and the government have been pulling the rope in opposite directions in hopes of landing on the same outcome - taming inflation and fostering economic growth.
While Gov Bullock has never made claims that the government's cost-of-living relief measures will put added pressure on inflation, Mr Chalmers, in his statement following the national accounts release, maintained the government's moves are the "right one".
"This data clearly shows the pressures people are under and demonstrates why the approach we took in the Budget was the right one in response to the difficult conditions we've been confronting," he said.
"We've been striking a fine balance between a primary focus on fighting inflation, providing cost of living relief and managing the challenges of higher interest rates and global uncertainty."
The Treasurer asserted that without the 0.2 percentage point contribution from new public final demand in the June quarter, "there wouldn't have been any growth in the economy at all".
These comments come despite the RBA forecasting public demand - i.e. government spending - is growing at a rate three-times greater than initially thought.
That said, the positive spending effects of government subsidies and stage 3 tax cuts are yet to be seen, with economists already declaring that we would see a gradual lift in household spending growth in the third quarter.
Major bank economists believe the Q2 headline result, which is in line with the RBA's expectations, "will not materially shift the central bank's thinking, despite household spending being notably weaker than it had forecast," ANZ economist Catherine Birch said.
Although some are tipping in some revisions in the RBA's forecast should be made.
"In the August Statement on Monetary Policy (SMP) it was noted that household consumption proved stronger than expected at the time of the May forecasts," CBA head economist Gareth Aird said.
"The RBA's view will need to be reversed in the November SMP to note that household consumption has proved weaker than expected at the time of the August forecasts."
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