Australia’s economy is starting to buckle under the pressure of higher interest rates and elevated inflation. Growth unexpectedly slowed sharply in the September quarter as consumers started to restrain their spending. GDP rose only 0.2% from the June quarter versus the estimate of a 0.5% gain. Considering the increased population count, this implies per capita recessionary conditions. Through the year, the GDP grew 2.1%, after a downwardly revised 2.0% gain in Q2, beating forecasts of a 1.8% growth.
Household consumption showed no growth, as government benefits and rebates reduced household spending on essential services such as electricity. The household savings ratio dropped to 1.1%, the lowest since Q4 of 2007. The data weakens the case for another RBA rate hike in February next year, although that will be dependent on new labour and inflation data released in December and January.
Australia’s national accounts confirm below-trend growth – fairly resilient despite headwinds to household disposable income from high rates. Looking ahead, we expect these headwinds to ease in 2024 alongside further falls in inflation. For the Reserve Bank of Australia (RBA), labour costs remain uncomfortably high, but we expect the RBA will sit on its hands regarding rates unless there is a material negative surprise between now and early February.
Source: Trading Economics
Real household incomes continue to decline
Source: Goldman Sachs
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