Australian GDP was surprisingly soft in the third quarter as households diverted some of the tax reductions and electricity rebates to savings.
Fin-X Wealth View
Overall, the data shows that the Australian economy is experiencing the lowest annual growth since 2020, although inflation was also the lowest since 2021.
Another quarterly decline in GDP-per-capita suggests that living standards are still declining and the economy continues to avoid recession due to immigration.
The key to understanding this report is recognising that the electricity rebates represented a shift away from household consumption to the public sector. The rebates drove a +1.4% increase in general government expenditure. Without the rebates, household consumption would have risen by a healthier +0.6%, according to our calculations.
Nevertheless, the improvement in the household savings ratio shows that not all of the additional income from wages, subsidies and tax reductions was being spent. Some of the additional net income was being diverted to rebuilding household balance sheets.
Corporate investment was relatively robust with investment in machinery and equipment (+1.0%) and intellectual property products (+1.5%) seeing healthy quarterly increases. However, productivity growth of -0.8% over the last year is far off the +1.0% that the RBA sees as necessary to keep wage increases of +3.5% consistent with the 2%-3% inflation target.
The Board is likely to take note that there are early signs of softening in the labour market but it might still be some time before they choose to act. The market is now fully pricing the first rate cut in April 2025 with a 50% chance of a February cut and the Australian dollar has weakened.
Details of the data released today
Australian real GDP rose +0.3% in Q3 2024 and by +0.8% over the year since September 2023 (seasonally adjusted), according to the ABS. The figures were below the consensus estimates of increases of +0.5% and +1.1% yoy.
In nominal terms, GDP rose +0.4% and +3.5% yoy.
Real GDP per capita fell by -0.3% and by -1.5% yoy.
Productivity fell by -0.5% and -0.8% yoy.
The terms of trade fell -2.5% and -3.5% yoy as commodity prices receded.
Household saving-to-income ratio rose from 2.4% to 3.2% as growth in gross disposable income outpaced growth in nominal household consumption. Compensation of employees (COE) increased +1.4%. The labour market remained tight with the unemployment rate at 4.1%, and increasing hours worked (+0.8%). Full-time employment increased +1.2%, outpacing part-time employment growth for the first time since September quarter 2023. However, the Wage Price Index growth slowed from the September quarter 2023 peak, providing an indication that conditions may be softening.
Household consumption (0.0%) was unchanged from the previous quarter. Essential spending fell 0.1% led by a strong fall in electricity, gas and other fuels (-16.7%). Discretionary spending rose 0.1% led by clothing and footwear (+2.2%).
Government consumption increased +1.4%. State and local general government expenditure (+2.2%) led the rise as additional state-based energy bill relief schemes were implemented in the quarter. The Federal energy bill relief fund was also extended and expanded from July 2024. Other social benefits to households such as NDIS and aged care saw subdued growth in the September quarter.
Public investment (+6.3%) increased after three quarters of falls. General government investment rose though imports of defence equipment and investment in hospital and road projects. Investment by state and local public corporations also contributed to the rise with increased activity across states on major road and renewable projects.
Private investment (+0.1%) increased modestly driven by dwelling construction through improvement in work done on new home commencements. This follows the recent period of construction bottlenecks due to labour and materials shortages. Ownership transfer costs (+1.6%) rose due to continued turnover in the property market.
Gross operating surplus (GOS) fell -1.5%. Private non-financial corporations (-3.9%) led the fall as Mining operating surplus (-9.1%) declined for a third consecutive quarter. Mining commodity prices fell across coal, mineral ores and other mineral fuels due to softer global demand, largely attributable to weakness in the Chinese construction sector reducing demand for steel manufacturing. Financial corporations gross operating surplus (GOS) (+1.1%) rose with growth in loan and deposit balances, while margins narrowed.
Net trade contributed +0.1% to GDP growth as imports (-0.3%) fell and exports (+0.2%) rose.
Changes in inventories detracted -0.4% from GDP growth, as a drawdown in inventories followed a buildup in the June quarter. Mining inventories were rundown as exports exceeded production during the quarter. Retail Trade inventories were rundown as subdued household demand saw previously imported stocks not replenished, particularly in clothing, household items and motor vehicles.
Katherine Keenan, ABS head of national accounts, said: “The Australian economy grew for the twelfth quarter in a row, but has continued to slow since September 2023. [...] The rise in public investment in the September quarter followed three consecutive quarterly falls. The level of investment this quarter was the largest on record, the previous record was in September 2023,” Ms Keenan said.
S&P/ASX200 8,453 -0.5%, AUDUSD 0.6439 -0.7%, Aus 10yr 4.27% -3bps
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