Economy unlikely to have contracted but growth muted

Fears of an economic contraction have been dulled with the latest net export result exceeding expectations.

Ahead of December quarter national accounts on Wednesday, some economists were warning GDP may have gone backwards for the last three months of 2023.

Data released on Monday showed firms running down their inventories over the quarter in a result that was weaker than expected and anticipated to wipe one percentage point off the December GDP.

But Tuesday’s stronger-than-expected net exports outcome should add 0.6 percentage points to growth over the quarter and counter some of the drag from private inventories.

Government spending data, also released on Tuesday, tracked broadly in line with expectations, with public sector inventories to contribute 0.4 percentage points to growth according the ABS.

ANZ senior economist Blair Chapman said the larger-than-expected net exports addition and an increase in public sector inventories would offset weak private inventories.

The bank is expecting a weak 0.3 per cent increase over the quarter, a little higher than the 0.2 per cent market forecast.

Annually, it anticipates a 1.5 per cent lift.

Mr Chapman said such a result would line up with the Reserve Bank’s expectations of where growth should be tracking.

“But, while GDP may come in roughly around the RBA’s expectations, recent monthly consumer price index and labour market data have increased the risk that the RBA could ease sooner than our November expectation,” he said.

Treasurer Jim Chalmers was out warning of a weak growth report on Tuesday, though his remarks came before the final data releases that slot into GDP.

“There is enough around to trouble us about how the economy finished 2023,” he told ABC TV.

Despite the forecasts for the quarter, Dr Chalmers said Australia was in a better position than similar economies, which had gone into recession during the same time period.

“The December quarter in the Australian economy and indeed the global economy was quite weak,” he said.

“Remember, that was the quarter where we saw Japan and the UK both go into recession.

“We had an interest rate hike right in the middle of that December quarter, we had those persistent cost of living pressures that people are confronting in our communities and around our country.”