First impressions: Australian national accounts, December quarter 2024

The Australian economy expanded by 0.6% in the December quarter, growth improving in line with expectations but still not particularly strong. Most of the detail in the update was also in line with expectations.

The GDP growth outcome was slightly softer than Westpac’s forecast of 0.7%qtr and in-line with the market forecast of 0.6%qtr. In a turn from recent history, the contribution from private demand edged out public demand, having made no contribution to growth over the previous two quarters. On another bright note, growth in per capita GDP has stabilised, up 0.1%qtr, after falling for seven consecutive quarters – the longest run of consecutive declines on record.

The main takeaway from the December update however is that the expected tentative recovery in private demand is underway but unfolding slowly. The pick-up in household consumption, supported by tax cuts is flowing through, but growth is still weak. Income growth has lifted, wage income picking up 2.0%qtr, the six-month annualised pace has also risen for the first time since December quarter 2023 to 4.3%yr. However, private investment remains mixed, dwelling investment still softening and only modest, unconvincing gains in business investment.

In year ended terms, the economy grew 1.3% in the December quarter – marking the first increase in the annual pace since September quarter 2023. This was a touch below Westpac’s forecast of 1.4%yr and inline with the 1.3%yr expected by the market.

Growth is improving but still sluggish. While there will be more support from lower interest rates in 2025, the pace of easing is likely to be slow and the response from households is expected to remain fairly muted. A more unsettled global backdrop and upcoming Federal election will also be adding to uncertainty.

In terms of the main components of the national accounts:

Total new government spending came in as expected and continues to rise strongly, reaching a record share of the economy at 27.7% of GDP, up from the previous peak of 27.6% last quarter. New public investment grew by 2.2%, driven by solid contributions from state and local governments. Government consumption also continues grow, up 0.7% in Q4, albeit at a notably slower pace compared to the previous two quarters (1.5% in Q2, 1.4% in Q3). The main drivers of this expenditure growth include cost-of-living support, public sector wages and the expansion of the care economy.

New private demand grew 0.4% in the December quarter, in line with our expectations, resulting in a 0.8% increase over the year. This was higher than the flat outcome recorded in Q3 (revised down), but still a tepid result for annual growth given population growing is tracking at a still solid 2%yr. Private demand on a per capita basis continues to decline.

Australian consumers continue to show a gradual improvement in both incomes and spending, albeit with the latter tracking a slow recovery from a weak starting point. Real spending rose 0.4% in the quarter, slightly below Westpac’s forecast with the detail showing the main surprise a further decline in vehicle purchases. Total wage income posted a strong 2.0%qtr gain but this upside surprise was offset by slightly bigger rises in interest and tax payments (the latter still up over the year despite the stage 3 tax cuts!) and a firmer than expected price deflator. The household savings ration nudged up from 3.6% to 3.8% – consistent with households continuing to put income gains towards rebuilding financial buffers rather than spending.

New business investment rose 0.5%qtr in the December quarter, bringing annual growth to 0.3%yr. Dwelling investment was a minor surprise in the quarter, falling 0.4%qtr against our expectations for a 0.8%qtr rise. The miss centred on additions and alterations which came in at -0.9%qtr vs our expectations of 0.9%qtr, likely driven by a pull-back in small renovations. Against this, new machinery and equipment surprised to the upside at -0.3%qtr vs our expectation for a -1.6%qtr decline.

Net exports and inventories were broadly as expected. Net exports contributed +0.2 ppts to growth in GDP in the December quarter, the largest growth contribution from the external sector in six quarters. Growth in net exports were primarily driven by lower travel service exports. Inventories added 0.1ppts to growth in the December quarter, with both the private and public sector increasing its stock of inventories (revisions to historical estimates caused a slight miss).

Labour productivity continued to fall in annual terms, GDP per hour worked down -1.2%yr. Looking beyond the headline, underlying trends still suggest that aggregate productivity is being skewed by the expansion of the non-market sector and a trend decline in mining productivity.

Nominal ULCs are now running at 4.7%yr, a touch above the outcomes recorded over 2019 when underlying inflation was below the target band. This was the first tick-up in the annual outcome since December quarter 2023. The quarterly pace edged higher from 0.8%qtr to 1.7%qtr.

First impressions: Australian national accounts, December quarter 2024

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