First impressions: Australian national accounts, December quarter

By Andrew Hanlan Senior Economist, Westpac

Australia’s economy limps along, output expanding by a tepid 0.2%. Domestic demand slows to a near stand-still, inching 0.1% higher. The slowdown has broadened from flat consumer spending to other parts of the economy, as anticipated.

That Australian economy continues to limp along, expanding by 0.2% in the December quarter, broadly meeting expectations.

Annual output growth printed at 1.5%, moderating from 2.1% the quarter prior.

A temporary jump in population growth on the national border reopening, to 2.6% for 2023, is underpinning activity.

In per capita terms, the economy is contracting, declining in the December quarter by -0.3%qtr, -1.0%yr.

The combined impact on Australian households of high inflation and contractionary policy settings is clearly biting.

Real household disposable income has been contracting, in the face of high inflation, higher interest rates and additional tax obligations – albeit there was a partial rebound in the December quarter, up by 1.5%, to still be -4.6% below September quarter 2021.

Domestic demand growth has slowed to a near stand-still – as anticipated, with a quarterly profile through 2023 of: 0.6%, 0.9%, 0.6% and now for the December quarter, only 0.1% (as expected).

In short, the economic slowdown broadened over the second half of 2023 from broadly flat consumer spending, which has been evident since the December quarter 2022, to other parts of the economy.

The challenging economic environment is set to shape conditions over the first half of 2024.

From mid-2024, the prospect is for conditions to improve, boosted by a policy pivot to less contractionary settings. Stag 3 income tax cuts commence on 1 July and the RBA is expected to cut rates (likely beginning in September, we anticipate) in response to a taming of inflation.

Productivity rebounded further in the quarter, with the 0.2% rise in output associated with an 0.3% decline in hours worked in the period.

Key surprise: No major additional surprises in terms of the GDP expenditure detail.

The statistical discrepancy subtracted 0.2ppts from activity. While inventories subtracted -0.3ppts, rather than the expected -0.4ppts.

Consumers remained under intense pressure in the December quarter, spending essentially flat, up just 0.1%qtr in aggregate terms and down about 0.5% on a per capita basis.

Incomes came in a little better than expected, public wage increases supporting labour incomes overall and a bigger than expected dip in tax payments (following the end of LMITO drop off effects) helping drive a 2.3% rise in nominal disposable incomes, a 1.5%qtr gain in real, inflation adjusted terms. However, the bulk of this flowed through to savings, the household saving rate lifting to 3.2% from 1.9% in Q3, the low level still implying a notional run-down in the excess reserves accumulated during COVID.

The income picture for households in the period was, in summary: nominal gross income rose by 1.5%, including wage incomes up by 1.4%; while nominal disposable income rose by 2.3% (the squeeze from higher interest rates and additional tax obligations eased in the quarter); and real household disposable income increased by 1.5%, with consumer prices up by 0.8%.

The household saving ratio rebounded a little, up from 1.9% last quarter to 3.2%, around the 3.0% level evident in mid-2023.

Hours worked: The National Accounts estimate that hours worked declined by -0.3%. That is less then the -0.7% in the Labour Force survey and less than we anticipated.

Expenditure detail:

Domestic demand slowed to a near stand-still, inching 0.1% higher in the quarter, representing a decline in per capita terms of -0.5%qtr, -0.3%yr.

Net exports was a sizeable positive for growth, adding 0.6ppts. While exports edged lower, down by -0.3%, that fall was outpaced by a slump in imports, down by -3.4%, associated with the soft domestic demand backdrop.

Total inventories subtracted -0.3ppts from activity, including: non-farm business inventories, -1.0ppt (on an inventory run-down associated with soft sales, as well as volatility in the mining sector); public authority inventories added 0.44ppts; and farm inventories, added 0.24ppts.

Home building declined sharply, down by -3.8%, as higher interest rates and the slowdown impact.

Business investment grew by 0.8% in Q3 and then by 0.7% in Q4, are abrupt slowing from 4.0% and 2.6% gains for Q1 and Q2. Notably, equipment spending contracted, down by -1.3%, as the slowdown impacts.

Public demand grew by a modest 0.4%.

First impressions: Australian national accounts, December quarter

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