/ 07 March 2024

The economy drags its feet

piggy bank

The Squiz

Australia’s economy grew by 0.2% in the October-December quarter of last year, bringing our annual growth rate for 2023 to 1.5% – our weakest result since 2000 when you exclude the crazy see-saw of the pandemic. And if you take into account Australia’s population growth for a third straight quarter, the data also shows that economic activity per person fell for the third consecutive quarter, meaning we’re well and truly in a per capita recession. Westpac economist Andrew Hanlan summed it up – he said the “tepid” growth shows the economy “limps along”. But others say it’s a sign the Reserve Bank’s interest rate rises are doing their job – reducing economic activity to bring inflation under control.

Ooh tell me more…

The Bureau of Stats Katherine Keenan says consumer spending on things like restaurants and clothing/footwear dropped to 0.1% in the December quarter as Aussies dig deep to cover essentials like power, housing, food and health. At the same time, government spending (which rose by 0.6%) and private business investment helped that growth number remain positive, but only just… Treasurer Jim Chalmers is fine with that, saying “slow growth is still significant growth given the challenging global conditions combined with the impact of higher interest rates”, but he reckons the worst is behind us. The Coalition’s Treasury spokesman Angus Taylor isn’t as optimistic and says the drop in per capita spending underlines the fact “Australia is in an entrenched GDP per capita recession” underscored by ongoing low consumer confidence.

So what does it mean?

There’s good/bad news… We flipped a coin and, starting with the bad – Stephen Smith from Deloitte Access Economics says the new data shows “Australia is not in recession, but many Australians are”. And the good news – he reckons we’re likely to see the Reserve Bank start to cut interest rates by 1% next financial year. As for what happens next, Smith believes “monetary and fiscal policy need to pivot away from containing inflation to stimulating economic growth”, and there are expectations the Albanese Government will address this (aka throw some cash around) in the May Budget.

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