First impressions: Australian national accounts, June quarter

Australia’s economy grew by a subdued 0.4%, meeting expectations. Consumer spending was broadly flat, up 0.1%, with incomes squeezed by high inflation, higher interest rates and additional tax obligations. Domestic demand grew by 0.7%, led by business investment and public demand.

The Australian economy expanded by a subdued 0.4% in the June quarter.

That met expectations, Westpac 0.4% and market median 0.4%, range (0.0% to 0.8%).

Annual growth slowed to 2.1%. The level of activity is 8.0% above that prior to the pandemic, at the end of 2019.

Note, that growth for the March quarter was revised higher, upgraded from 0.2% to 0.4%.

GDP per capita contracted for a second consecutive quarter, down by -0.3% in both Q1 and Q2, with annual growth turning negative, to the tune of -0.3%.

Population growth according to the accounts is running at 2.4%yr.

Key surprise: The Accounts were largely as anticipated.

Consumer spending was broadly flat, up by only 0.1%, meeting our expectations.

Domestic demand was a little stronger than anticipated, up by 0.7% vs an expected 0.5%.

Business investment provided the upside, increasing by 2.1%, rather than 1.4% - with equipment spending in the final quarter of the financial year up by a brisk 4.3% (well above the quarterly partial of 1.9%).

The total drag from inventories was -1.1ppts, rather than the -0.9ppts anticipated.

Consumer spending was largely in line with expectations, up just 0.1%qtr, and contracting for a third successive quarter in per capita terms.

The detail was also as expected, weakness centred on a fall in retail spending, with services inching up only very slightly, with vehicle-related spend the only real positive.

Incomes were a touch softer than expected, with more of the spending gain ‘funded’ by lower new saving (and an implied run-down in excess savings accumulated during the pandemic).

The income picture for households in the period was, in summary: nominal gross income rose by 1.8%, including wage incomes up by 1.6%; while nominal disposable income rose by a more modest 1.1% (squeezed by rising interest payments and additional tax obligations); and real disposable income contracted, down by -0.1% in the quarter and down a sharp -3.0% over the year.

The household saving ratio moderated further, from 3.6% to 3.2% - which is well below the “6% equilibrium” as households draw down the “excess savings” accumulated during the pandemic.

Hours worked: The National Accounts estimate that hours worked expanded by 2.5%, while the Labour Force survey estimated that hours work rose by 2.9% in the quarter.

Expenditure detail:

Domestic demand grew by 0.7% in the quarter, centred on business investment and public demand.

Net exports made a sizeable positive contribution to growth, adding 0.8ppts. Export volumes expanded by 4.3%, centred on a 12.1% jump in services, as international students and tourists return.

Total inventories subtracted a hefty -1.1ppts from activity, centred on non-farm business inventories, which fell sharply, down by -$3.5bn, and subtracted -1.0ppt.

Home building activity weakened a touch, down by -0.2%, as the renovation boom deflates, work in that segment declined by -2.4%, more than outweighing a 1.2% increase in new dwelling construction.

Business investment increased by a robust 2.1%, as firms look to expand capacity and encourage by generous tax incentives, some of which expired on 30 June 2023. Equipment spending was up by a brisk 4.3% in the quarter.

Public demand grew by 1.2% in the quarter. While public consumption is cresting at a high level as the spike in covid related spending unwinds, public investment is trending higher and posted a strong 5.2% rise in the quarter.

First impressions: Australian national accounts, June quarter

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