Australia’s Per Capita Recession Deepens, Even as Economy Grows

(Bloomberg) — Australia’s economy slowed in the final three months of last year and a per capita recession deepened as higher rates and rising living costs dragged on household spending.

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Gross domestic product advanced 0.2%, easing from an upwardly revised 0.3% in the prior quarter, Australian Bureau of Statistics data showed Wednesday. From a year earlier, the economy grew 1.5%, matching estimates, as did the quarterly change.

The annual result was the weakest, outside the pandemic, since the final quarter of 2000 and below the decade average of 2.4%. In per person terms, GDP fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn, also outside of the Covid-era, since 1991, according to Bloomberg Economics.

The slowdown will likely increase pressure on the Reserve Bank to begin an easing cycle this year, after it left rates unchanged at its last two meetings while refusing to rule out a further hike.

“Household consumption growth continues to struggle against tight policy settings,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia. “The Australian economy is in the midst of a cyclical low point, with policy settings and fast inflation curbing growth. Indeed, while growth has stayed in positive territory, it has slowed in each quarter.”

Wednesday’s data showed government spending and private business investment were the main drivers of growth, outpacing household consumption.

Government expenditure advanced 0.6% in the fourth quarter, adding 0.1 percentage point to GDP. Households salted away more cash, with the savings ratio climbing to 3.2% from an upwardly revised 1.9%, while their spending was little changed.

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Government spending was driven by “benefits for households, with more spending on medical products and services and higher employee expenses across commonwealth departments,” Katherine Keenan, head of national accounts at the ABS, said in statement. A referendum for an Indigenous advisory body to Parliament “held during the quarter also contributed to the rise in employee expenses.”

Keenan said households raised their spending on essential items such as electricity and rent but “wound back” discretionary expenditure including hotels, cafes and restaurants.

What Bloomberg Economics Says…

“In per-capita terms, the economy has entered its deepest downturn — outside of the pandemic — since 1991. Looking ahead, we expect growth to remain sluggish, and continue contracting in per-capita terms, through 1H24 as tighter monetary policy works its way through the economy”

— James McIntyre, economist

For the full note, click here

The RBA predicts annual economic growth will trough at 1.3% in the middle of this year, before regaining momentum as its estimates assume a lower cash rate from then on.

Treasurer Jim Chalmers said the economy’s ability to generate growth is still “significant” given high interest rates locally and a challenging global backdrop.

“Addressing inflation is still our primary concern, but these numbers show that the balance of risks in our economy are shifting from inflation to growth,” he said.

Today’s GDP data also showed:

• Strong population growth saw GDP per capita fall for a fourth consecutive quarter

• Inventories slipped as imports of consumption goods like food, clothing, electrical items and cars fell 5.4% during the quarter

• Spending on overseas travel dropped 9%, reflecting a shift toward destinations closer to home, led by New Zealand and Indonesia

• On the other hand, spending by visitors to Australia rose 1.2% to now be above pre-pandemic levels

• Spending on new warehouses and data centers drove a 5% rise in non-dwelling building construction

–With assistance from Ben Westcott.

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