The Australian economy continued its run of near-zero growth and declining GDP per capita in Q2 2024. Corporate profits fell while employee compensation rose. However, household spending remains subdued and the savings rate is well below the long-term average.
Australian GDP grew by just +0.2% in the June quarter of 2024, in line with economists' forecasts. Q1 was revised up from +0.1% to +0.2%.
The annual change in GDP was +1.0%, beating forecasts by +0.1%. Q1 was revised up from +1.1% yoy to +1.3% yoy.
GDP per capita was down for the sixth consecutive quarter, falling -0.4%.
Nominal GDP rose +0.2%. The GDP implicit price deflator (IPD) was flat in the June quarter.
Katherine Keenan, ABS head of national accounts, said: “The Australian economy grew for the eleventh consecutive quarter, although growth slowed over the 2023-24 financial year. Excluding the COVID-19 pandemic period, annual financial year economic growth was the lowest since 1991-92 - the year that included the gradual recovery from the 1991 recession."
The terms of trade fell -3.0% due to falls in export prices relative to import prices. Mining commodity prices fell for a second consecutive quarter, influenced by reduced global demand for iron ore and coal. Import prices were unchanged from the previous quarter as price rises for transport freight were offset by lower oil prices.
Gross operating surplus (GOS) fell -0.6%. Private non-financial corporations (-2.8%) led the fall as Mining GOS (-7.8%) declined for the second consecutive quarter.
Compensation of employees (COE) increased +0.9%, and +7.5% for 2023-24 the financial year, following the peak +10.1% growth in 2022-23. While the labour market remained tight, there are indications that competition for labour began to ease, seen through gradual slowing in the wage price index growth from the September quarter 2023 peak.
Household consumption (-0.2%) experienced the weakest growth rate since the lockdown-affected September quarter of 2021, detracting -0.1% in Q2 due to reduced discretionary spending.
Essential spending increased +0.5% in the quarter. Rent and other dwelling services led the rise, in line with continued population growth.
Electricity, gas and other fuel (+2.4%) rose due to a reduction in electricity rebates provided during the quarter, alongside increased demand for heating due to a cooler June period. Spending on food (-1.0%) fell as households substituted affordable options to reduce grocery expenses.
The household saving-to-income ratio remained at +0.6%, as growth in gross disposable income outpaced growth in nominal household consumption.
Government expenditure contributed +0.3%, driven by continued strength in social benefits to households.
Investment made no contribution to growth, as net transfers of second-hand assets resulted in a detraction from total private investment (-0.1%) and was offset in public investment (+0.1%).
Net trade contributed +0.2%, with a rise in exports (+0.5%) and a fall in imports (-0.2%).
Changes in inventories detracted -0.3% from GDP, with a smaller build-up in inventories compared to the March quarter. Manufacturing and Wholesale trade inventories experienced a run down from increased sales of fertiliser inventories imported in March.
Overnight, the ISM Manufacturing survey (47.2) remained in contraction and undershot expectations. New orders (44.6) fell faster than last month.
S&P/ASX200 7,951 -1.9%, AUDUSD 0.6701 -0.2%, Aus 2yr 3.66% -5bps, Aus 10yr 3.93% -6bps
Fin-X Wealth View
The Q2 GDP report made for pretty unpleasant reading as living standards fell for a sixth consecutive quarter.
Rising compensation suggests that household incomes are rising. But the report also provides more evidence that a combination of higher interest rates and prices is squeezing budgets. At the same time, wages, prices and interest rates are also weighing on corporate profits.
The personal tax cuts and electricity rebates will relieve some pressure, but it's not yet clear whether the relief will be directed to consumption or to rebuilding savings.
Overall it seems that the economy is at risk of tipping into a deeper slowdown if the global economy rolls over, which seems increasingly likely given the disappointing Chinese and American data.
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