Australia’s economy slows in Q3 as higher rates, prices sap spending power

Australia’s economy slowed a little in the September quarter as sky-high prices and rising interest rates sapped consumer spending power, a sign aggressive policy tightening is working to cool demand.

Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product (GDP) rose 0.6 percent in the third quarter from the previous three months, compared with 0.9 percent the previous quarter and just under forecasts of 0.7 percent.

Annual growth still sped to a heady 5.9 percent, faster than China, though largely thanks to a one-off boom late last year as the economy reopened from pandemic lockdowns.

Household consumption was again the engine of growth with a rise of 1.1 percent in the quarter, driven by spending on travel, eating out and new motor vehicles. However, that was down from a 2.1 percent jump in the second quarter and the lowest gain in a year.

There were also signs consumers were tightening their belts as the saving ratio dropped to 6.9 percent, from 8.3 percent the previous quarter, and peaks above 20 percent during the pandemic.

That suggests the Reserve Bank of Australia’s (RBA) campaign to slow demand, and ultimately inflation, is working.

“The decent rise in third quarter GDP probably marks the last hurrah for Australia’s economy as tighter monetary policy and falling real incomes weigh on spending,” said Capital Economics senior economist Marcel Thieliant.

The central bank on Tuesday raised its cash rate a quarter point to a 10-year high of 3.1 percent, bringing its total tightening since May to a thumping 300 basis points.

Markets are wagering it is not done yet with futures, implying rates will peak around 3.6 percent in the middle of next year.

Evidence of inflation pressure was widespread in the GDP report as its price index for domestic demand surged 1.8 percent in the quarter, the biggest increase since the introduction of a sales tax back in 2000.

Compensation of employees, one proxy for wages, boasted the biggest gain since 2006 as companies were forced to pay to attract and keep staff with unemployment at five-decade lows of 3.4 percent.

The country is still wading in cash thanks to sky-high prices for many of its resource exports. That helped nominal GDP grow a blistering 13.1 percent in the year to September to reach a record A$2.38 trillion, or A$91,847 for every Australian.

 

SOURCE: NEWS AGENCIES