Australian Q1 GDP

Growth slows to a tepid pace, as high inflation and rising interst rates weigh on consumer spending. Q1 domestic demand: 0.6%qtr, 2.2%yr. Q1 real GDP: 0.2%qtr, 2.3% yr.

Read full report 'Australian national accounts Q1' (PDF 175KB)

Economic activity in the Australian economy has slowed to a tepid pace as the intense headwinds of high inflation and rising interest rates bite – leading to a decline in real household disposable income and a resulting deceleration in consumer spending to a weak pace.

Output nationally grew by 0.2% in the March quarter 2023, broadly as anticipated.

That represents a material slowing from a 0.6% result for the December quarter 2022 (upgraded from 0.5%) and an average quarterly pace of 0.65% throughout 2022.

Annual output growth is 2.3% and the level of activity is 7.4% above that at the end of 2019, prior to the pandemic.

The detail and tone of the March quarter National Accounts was, in broad terms, largely as anticipated.

The arithmetic of the March quarter result was: domestic demand growth of 0.6%; net exports –0.2ppts; total inventories flat; and the statistical discrepancy –0.1ppt (i.e. the income and production estimates of GDP at 0.2% were a fraction softer than the expenditure measure, which printed at 0.3%, meeting expectations).

In per capita terms, output contracted by –0.3% in the March quarter, the ABS advise. Outside of the covid lockdown quarters, that is the first decline in per capita output since December 2018, which was a –0.1%.

Population growth was 0.5% in the March quarter and 2.0% over the past year, boosted by a spike in arrivals on the reopening of the national border.

Domestic demand growth improved to a 0.6% in the March quarter, after a broadly flat final quarter for 2022 (revised up to +0.1% from flat). That result was centred on a strong quarter for business investment, 2.9%, and a modest rise in public demand, +0.8%, in the context of a cresting at a high level as the spike in covid related spending unwinds.

Looking ahead, the risk is that domestic demand growth slows, returning to the weakness evident at the end of 2022.

The most notable and concerning aspect of the national accounts was the weakness in consumer spending – which was much anticipated.

The Australian consumer continues to come under intense pressure. Consumer spending eked out a slight 0.2%qtr rise in the quarter, but the detail around both spending and incomes was again poor. The ‘triple-whammy’ of inflation, higher interest rates and fiscal drags is seeing the biggest annual contraction in real disposable incomes in forty years, with no let-up in sight.

‘Big ticket’ discretionary spending is being wound back sharply. The offsetting gains in the quarter centred on utilities and transport (including tourism-related travel). Notably, spending has now recorded two material quarterly declines in per capita terms.

Spending gains are also being funded entirely by lower new saving and a run-down of the large reserves accumulated during the pandemic – a dynamic that looks to have less scope to provide support going forward, the savings rate now having dropped to 3.7%.

The productivity story remains very weak. The March quarter accounts reported a 0.6% rise in hours worked and only a 0.2% lift in output. Over the year to March, the increase in hours worked (+7.1%) has far outstripped that of output (+2.3%).

Impacted by this weakness in productivity, nominal unit labour costs jumped 2.0% in March, building on the 1.5% gain in December, 2.1% lift in September and June. This has seen the annual pace of unit labour cost surge to 7.9%yr in March, up from 4.0%yr in June – a troubling lift that the RBA has singled out as potentially making its task of reining in high inflation more difficult. The recent peak in unit labour costs annual inflation was 15.7%yr in June 2021 on the back of the COVID disruptions that drove a collapse in output.

Click on above PDF link for full report

Australian Q1 GDP

Related articles

Australian GDP Q1: Shaky handover?

NZ GDP review, December quarter 2024

First impressions: NZ GDP, December quarter 2024

Browse topics