Australia’s economy recorded its weakest annual growth rate in decades (outside of the pandemic) in the September quarter. Private demand was negative, with overall economic activity being propped up by government spending. Australia’s economy grew by just 0.3% in the September quarter, and 0.8% over the year, according to the Australian Bureau of Statistics (ABS), significantly below expectations. The last four quarters have recorded growth rates of only 0.2%, 0.2%, 0.2%, and 0.3%.
Treasurer Jim Chalmers has spent much time warning that the Reserve Bank of Australia’s (RBA) 13 interest rate rises were “smashing the economy”. He is keen to keep the blame focused on the RBA. The chances of the RBA cutting interest rates by 0.25% in February 2025 have subsequently risen.
The RBA was expecting annual growth to pick up to 1.5% by the end of this year, so annual growth of 0.8% at this stage in the cycle suggests that the forecast will be difficult to achieve. Household spending was flat. The Terms of Trade have fallen again. The household savings ratio rose, suggesting a lack of confidence in spending.
The central bank has said it needs to see inflation drop to the midpoint of its 2 to 3 percent target range on a sustainable basis before it considers cutting. Inflation in the three months to September dropped to 2.8%.
The ABS data shows economic activity in the September quarter was heavily reliant on state and federal government spending. After three consecutive quarterly falls, public investment in the quarter was the largest on record. But RBA governor Michele Bullock has argued against the view that there was too much government spending in Australia now, saying it was helping to keep the economy on an “even keel.”
The Australian dollar (AUD) weakened against the US dollar (USD) after the release of the figures. Goods exports grew 0.9% in the quarter, boosted by coal, but services exports fell 3.6% due largely to a drop in education-related travel.
An economist at the Commonwealth Bank of Australia, said: “The economy remains two‑speed. Economic growth in the private sector has been non-existent over the past two quarters. It is only public spending that has kept GDP growth positive over that period. This is an unusual situation and one that is largely behind the ongoing period of very weak productivity growth.”
The AUD has fallen sharply since the end of September when it touched USD 0.69, and is now hovering just below USD 0.65.
Source: Trading Economics
