GDP growth to taper off after robust June quarter rise
Expanding household spending and exports helped push Australian GDP 0.9 per cent higher in the June quarter, making it the third consecutive quarter of economic growth. But economists expect economic growth to taper off going forward.
Growth for the year to June was up 3.6 per cent, according to the Australian Bureau of Statistics (ABS) today.
This is well above the decade average growth rate of 2.3 per cent and in line with consensus.
"Exports recorded the strongest quarterly rise since the Sydney Olympics boosted travel exports in September quarter 2000," says Sean Crick, head of National Accounts at the ABS.
Goods exports rose 4.2 per cent, with the main contributors being mineral ores, other mineral fuels and rural goods. Services exports rose 13.7 per cent, driven by travel and transportation services, as international borders were open for the full quarter.
Crick says household spending rose 2.2 per cent for the quarter, contributing 1.1 percentage points to GDP. Growth was driven by spending on travel-related categories such as transport services (up 37.3 per cent) and hotels, cafes and restaurants (up 8.8 per cent), while spending on food fell 1.2 per cent.
"Households increased spending on domestic and international travel as COVID-19 restrictions further eased and international borders remained open,” says Crick.
“While spending on transport grew strongly, households were still only spending two-thirds of what they did pre-pandemic.”
NAB economists Alan Oster and Gareth Spence say the GDP figures reflect many moving parts, including a rebound from a COVID-impacted first quarter, weather and supply impacts on construction, the ongoing recovery in services spending and normalising trade patterns.
Looking forward, they expect growth to continue at a slower rate as Australia moves further past the rebound from lockdowns and as higher prices and interest rates start to weigh on households and the economy more broadly.
“Overall, we see growth slowing to be below trend over the next two years,” they say.
“We expect the slower growth to eventually feed through to the labour market with the unemployment rate drifting up over the next two years but remaining broadly around full employment. That sees wage and domestic inflationary pressure continue to build as the impact of international factors begins to wane.”
Ryan Felsman, a senior economist at CommSec, also sees the economy slowing going forward.
He says the GDP figures largely pre-date the lagged impact on the real economy of the Reserve Bank of Australia’s combined 225 basis points worth of rate hikes since May, the most aggressive policy tightening cycle since 1994.
Other measures suggest that economic activity is slowing. For example, August business surveys from both S&P Global and AiGroup show that manufacturing, services and construction activity have all weakened materially, suggesting that high inflation and rate hikes are slowing consumer demand and economic output.
On the consumer side, Felsman says sentiment surveys are at recessionary levels and CBA’s internal credit and debit card spending data indicates that spending growth is moderating.
“And already under pressure from skyrocketing energy and food costs, home borrowers are unlikely to feel the full impact of higher mortgage repayments until later in the year,” he says.
CBA economists estimate that there is on average a three-month lag between an RBA rate hike and when CBA borrowers on variable rate mortgages experience an increase in their home loan repayments.
Looking ahead, Felsman expects solid economic growth to continue in the near term, supported by consumer spending as wages lift and households draw on their savings to offset rising borrowing costs and cost of living pressures.
He expects the economy to eventually lose momentum in 2023, weighed down by the RBA’s rapid interest rate hikes to slow inflation.
“Households are expected to slow their rate of spending as the sharp fall in home prices and persistent volatility in financial markets dampen the so-called ‘wealth effect’,” he says.
“CoreLogic’s measure of national home prices has already declined at the fastest monthly pace since 1983 in August. And while non-mining business investment plans remain positive, China’s economic slowdown and weaker commodity prices could eventually weigh on net exports.”