Australian national accounts, September quarter

Household spending stalls. Real household disposable income contracts on high inflation, higher taxes and rising interest rates. Q3 domestic demand: 0.5%qtr, 2.2%yr. Q3 real GDP: 0.2%qtr, 2.1% yr.

Read full report 'Australian national accounts, September quarter' (PDF 201KB)

The Australian economy limped along in the September quarter, expanding by just 0.2% in the quarter. This is weaker than we expected. Growth over the year was 2.1%, less than population growth over the same period. While the population surge earlier in the year has supported demand overall, it is now rolling over and will not provide the same support in 2024. Domestic final demand was up by 0.5% in the quarter and private final demand by just 0.2%. This is a subdued – and view-changing – picture.

The policy drag on Australian households is clearly biting. Nominal household disposable income barely increased in the quarter (+0.1%), despite strong growth in labour income. When the drag from inflation is factored in, this amounts to a substantial contraction in real household disposable income. The drag from higher tax is significant, detracting 1.2ppts from gross income in the quarter and 3.6ppts over the year. Some of this can be attributed to the expiry of the Low and Middle Income Tax Offset, but non-income tax receipts also increased strongly over the past year. The tax take from total gross income, at around 17¾%, is the highest recorded in the quarterly national accounts. The drag on incomes from rising net interest payments was much smaller than the drag from tax, at 1.1ppts over the year.

Consumption was flat in the quarter. This was well below our expectations. Government subsidies provided a considerable offset (reflected in strong growth in government consumption), but even allowing for that, this is a weak outcome that has been flattered by a catch-up in (imported) vehicle deliveries. Compounding the weak picture, the recent history for consumption has also been revised down. Even with consumption as weak as it has been, household income was weaker. The measured household saving ratio therefore declined further, to 1.1%.

Business investment was also relatively soft. As we predicted, machinery and equipment investment was not resilient to the ending of tax incentives. Even allowing for the catch-up in vehicle deliveries mentioned above, this component of investment was broadly flat in the quarter, at +0.2%. Infrastructure activity is a positive, expanding by 2.3%qtr, 9.3%yr, as investment in the energy transition lifts. Dwelling investment remains subdued, however, rising only 0.2% in the quarter to still be down a little on the year. The housing construction industry remains supply constrained and is slowly working through the backlog of already approved homes.

With hours worked declining and GDP increasing – if only marginally – measured productivity increased by 0.9% in the quarter (0.6% in the market sector). The extraordinary 2% decline in the level of productivity recorded in the June quarter was also revised smaller, to –1.6%. This is as we recently predicted. These data are noisy and subject to measurement error and so should be treated with due care. As Westpac Senior Economist Pat Bustamante and Economist Jameson Coombs outlined in their note last week, the decline in the level of productivity in Australia (and Canada) can be partly explained as the mechanical impact of the population surge. As the catch-up after the reopening of borders fades, both the capital–labour ratio and measured productivity will recover almost mechanically. While it is understandable that policymakers were worried about recent weakness in productivity, they should never rest their policy decisions on the shaky grounds of short-term movements in productivity and unit labour costs.

The National Accounts data update shows decisively that the combined effect of monetary and fiscal policies is crimping domestic demand and bringing it back into balance with supply. Some of the narratives sustaining the hawkishness in the RBA’s recent communications – including the productivity slump and the earlier resilience of equipment investment – are no longer operative. Related to this, the data on average earnings and labour costs in today’s accounts were not especially concerning. While the next two months of inflation data remain a key focus, today’s data are view-changing. In the face of subdued domestic demand growth and a household sector under extraordinary income pressure, further macroeconomic policy tightening would be hard to justify.

Luci Ellis, Chief Economist, Westpac Group

Click on above PDF link for full report

Australian national accounts, September quarter

Related articles

NZ GDP review, December quarter 2024

First impressions: NZ GDP, December quarter 2024

NZ GDP preview, December quarter 2024

Browse topics