Australia’s Economy Continues to Slow as Rates, Costs Crush Confidence — Update
By James Glynn
SYDNEY–Australia’s commodity-rich economy continued to slow in the final months of 2023, adding to concerns that a hard landing is coming, especially if the Reserve Bank of Australia delivers on its recent comments that further interest-rate hikes are possible.
The economy grew by 0.2% sequentially in the fourth quarter, and by 1.5% from a year earlier, moderating from on-year growth of 2.1% in the third quarter, the Australian Bureau of Statistics said Wednesday. Economists had expected growth of around 0.2% on the quarter and 1.4% compared with a year ago.
Strong government spending and growth in business investment helped keep the economy afloat through the quarter, but growth has been slowing sharply for some time as rising interest rates and soaring living costs weigh on consumer confidence.
The result leaves the economy at risk of a contraction in coming quarters and should keep the RBA sidelined, with many economists expecting interest rates will start fall before the end of the year.
With the slowdown has come a rise in the unemployment rate from a 50-year low of 3.4% in October 2022, to 4.1% in January this year. The RBA is forecasting that unemployment will continue rising this year.
Treasurer Jim Chalmers told reporters that the risks before the Australian economy were shifting from inflation to growth.
“We’ve had a sole focus on the inflation fight, but that will change over time inevitably. Inflation is still our primary focus. I think it is still the main challenge in our economy…but the balance will shift over time,” he said.
Strong population growth is a key factor behind the continued growth of the economy, said Callam Pickering, economist at global job site Indeed.
“For the fourth consecutive quarter, economic activity declined on a per capita basis and the 1% decline over the past year is the largest Australia has experienced in 33 years, excluding the pandemic. Population growth is the only thing standing between Australia and recession,” Pickering said.
Government spending rose 0.6% in the fourth quarter, driven by government benefits to bolster household budgets against things like soaring rents and electricity costs, the ABS said.
Business investment grew 0.7% over the quarter, supported by non-dwelling construction, it added.
Business inventories fell on the back of reduced imports, which economists said was in line with the broader economic slowdown
Still, consumer spending rose slightly as households upped their spending on essential items like electricity, rent, food and health, the ABS added. Consumer spending was wound back spending in discretionary areas including hotels, cafes and restaurants.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
March 05, 2024 21:08 ET (02:08 GMT)
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