Australia’s GDP Growth Disappoints as Households Hunker Down

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(Bloomberg) — Australia’s economic growth remained sluggish in the three months through September, as higher government spending helped overcome weak exports and restrained consumer demand.

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Australian Bureau of Statistics data showed on Wednesday that gross domestic product rose 0.3% from the previous quarter, lower than economists’ estimates of a 0.5% increase. Compared to the previous year, the economy grew by 0.8% compared to expectations of 1.1%.

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The growth was driven by public sector spending with both government consumption and public investment contributing, Catherine Keenan, head of national accounts at ABS, said in a statement. She added that the per capita GDP decreased for the seventh consecutive quarter.

The Australian dollar fell 0.3%, while policy-sensitive three-year bond yields pared their gains after the data. Swaps traders boosted bets on a rate cut at the Reserve Bank of Australia’s April meeting to around 71%, up from around 60% yesterday.

Annual growth has slowed significantly from a decade average of 2.3% and today’s data suggests that demand-driven inflation pressures may be easing, opening the door for the Reserve Bank to start easing next year. The interest rate is currently at its highest level in 13 years at 4.35%, and money market prices indicate that the first cut will occur in May.

The Reserve Bank of Australia expects the annual expansion to accelerate to 1.5% by the end of the year before rising to 2.3% in 2025.

Bloomberg Economics expects growth to remain sluggish and continue to contract in per capita terms, as the cumulative effect of rising interest rates weakens household demand and housing-related activity.

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Economists at three of Australia’s four major banks expect the Reserve Bank of Australia to start cutting interest rates in May 2025, although the next easing cycle is likely to be shallow. In comparison, the Federal Reserve may cut interest rates for a third straight meeting this month.

Data on Wednesday showed that the household savings ratio rose to 3.2% as Australians saved unexpected money from tax cuts and government cost of living support measures.

Household spending changed little and contributed nothing to GDP growth in the third quarter. The main factor was spending on electricity and gas, where energy bill relief discounts were treated as a shift from household spending to government spending in the national accounts.

What makes the Reserve Bank of Australia’s inflation fight more difficult is weak productivity growth in Australia, with data today showing gross domestic product per hour worked fell again last quarter, economists said. This is a worrying trend for policymakers given that productivity growth is critical to high living standards and sustainable wage increases.

The GDP report also showed:

• Government spending rose by 1.4%, adding 0.3 percentage points to GDP growth
• Non-residential construction prices fell by 2.7%, a decrease of 0.1 point of GDP
• “Quarterly growth in domestic prices was the lowest since March 2021,” ABS’s Keenan said. This reflects “declining commodity prices in the economy coupled with more flexible service prices.”

-With assistance from Shinjini Datta and Garfield Reynolds.

(Adds market reaction, more details from report.)

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