Australian economy jumps but below market expectations

Many Australians may still be feeling cost-of-living pressures for some time, with discretionary spending slumping in the September quarter.

Australia’s economy is on the rise, but it came in lower than the market was anticipating.

Fresh figures released by the Australian Bureau of Statistics show gross domestic product rose 0.4 per cent over the September quarter.

The yearly growth rate now comes in at 2.1 per cent.

This followed a yearly growth rate of 0.6 per cent in the June quarter.

GDP per capita was flat for the quarter as economic growth was in line with population growth but remained 0.4 per cent higher than a year ago.

This was above the Reserve Bank of Australia’s estimates of two per cent, but below the growth rate expectations of the market, which was about 2.2 per cent.

Oxford Economics Australia head of economic research Harry Murphy Cruise said the Australian economy was in good shape, despite the below expectations growth rate.

“Slightly too good, in fact, for the RBA,” he said.

“With inflation rising and domestic momentum building, the central bank has its work cut out for it. Rate cuts are off the table for some time, and a hike next week to nip inflation in the bud can’t be ruled out.”

Australians spending on discretionary items slope. Picture: NewsWire/ Monique Harmer

Leading the mediocre result was weak consumer spending.

While household spending rose 0.5 per cent, this was purely essential spending which jumped on payments for banking and superannuation services, electricity and health.

Meanwhile discretionary spending fell 0.2 per cent in the September quarter.

The ABS said this was due to timing with the strong rise in the June quarter partially attributed to the extended Easter break and a strong take up of end of financial year sales.

Australians are also saving more, with the income ratio up 6.4 per cent in the September quarter.

KPMG chief economist Brendan Rynne says Australia’s economy has moved from second to third gear, but is still well off top speed.

“Household consumption as a proportion of GDP has stabilised to near pre-Covid levels, while government consumption continues to rise and now represents its highest recurrent spending level since September 1959, when the ABS national accounts data first began,” he said.

Government spending also rose during the September quarter. Picture: NewsWire / Nicholas Eagar

Over the September quarter, public investment rebounded, up three per cent over the quarter largely due to investments in renewable energy and water.

Treasurer Jim Chalmers defended the government’s public spending boost while telling reporters it is not a key consideration when it comes to the RBA cutting interest rates.

“If public spending is the key determinant of interest rate decisions, we’ve had three interest rate cuts this year and two came after the budget Katie and I handed down in March,” he told reporters.

Mr Chalmers stated debt to GDP is lower than other countries and peak debt is falling.

“It’s $200bn almost less debt in our budget than when we came to office,” he said.

“And so we’ve been managing our budget the most responsible way that we can we’ve seen in three interest rate cuts already this year, I think the pressures on inflation and some of the considerations around interest rates are not primarily about the budget position, but if they are, we’ve seen those three cuts already this year.”

Meanwhile, business investment contributed a 0.5 per cent increase to GDP in September.

This was driven by machinery and equipment investment, which rose 7.6 per cent.

This rise aligned with an increase in imports of capital goods.

“The rise in machinery and equipment investment reflects the ongoing expansions of data centres. This is likely due to firms looking to support growth in artificial intelligence and cloud computing capabilities,” ABS head of national accounts Grace Kim said.

Originally published as Australian economy jumps but below market expectations