Tuesday, 23 July 2024
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AustraliaEconomy

Australia’s economy is barely growing, with surprisingly low consumer spending

  • Australia’s economy barely expanded in the third quarter due to weakening exports.
  • Real GDP increased by 0.2% from July to September compared to the previous quarter.
  • The decline in commodity export prices resulted in a 0.6 percentage point reduction in GDP from net exports.

Australia’s economy barely expanded in the third quarter due to weakening exports and hesitant consumer spending stemming from a spike in mortgage payments, which may indicate that rate increases were having a moderating effect on demand.

Real gross domestic product (GDP) increased by 0.2% from July to September compared to the previous quarter, marking the eighth consecutive quarter of growth—albeit at its slowest pace in a year. That came in below estimates of 0.4%, and the outcome strengthens the argument that the Reserve Bank of Australia should stop tightening.

Australia’s economy

Based on data released by the Australian Bureau of Statistics on Wednesday, the annual GDP growth was 2.1%, which was essentially unchanged from the previous quarter.

Australian economist Andrew Hanlan of Westpac said, “Australia’s economy hit the wall in the September quarter,” adding that it was unexpected to see how weak consumer spending was during the quarter.

Real household disposable income is declining due to high inflation, rising interest rates, and increased tax obligations; over the past four quarters, household spending has remained unchanged.

The worst month of inflation since the global financial crisis occurred in October when it hit 4.9%. The Australian Reserve Bank has implemented monetary tightening to bring inflation back within its target range of 2% to 3%. The decision by the central bank to remain unchanged will give more time to evaluate the effects of an interest rate increase of 425 basis points since May of last year.

Given the dovish stance taken by the Federal Reserve and the European Central Bank, as well as the aggressive rate cuts already priced in for next year, markets assume that the RBA doesn’t need to hike further. The savings rate’s low level indicates that consumers might soon feel pressured to make financial cuts.

The decline in commodity export prices resulted in a 0.6 percentage point reduction in GDP from net exports. Productivity climbed by 0.9% during the quarter, and the RBA anticipates that a rebound in productivity will be necessary for inflation to reach its target range of 2% to 3% by the end of 2025.

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