Buck stops with me: Chalmers confronts worst economy since COVID lockdowns

The economy is on track for its worst performance since the depths of COVID-19 shutdowns as Treasurer Jim Chalmers fends off accusations he is undermining the independence of the Reserve Bank and its war on inflation.

After new figures revealed a further slowdown in job ads, a contraction in company profits and a weakening in price pressures, analysts expect this week’s pivotal national accounts will show an economy barely growing and in a recession when population growth is taken into account.

Treasurer Jim Chalmers admits the economy is weak as households deal with high interest rates.Credit: Alex Ellinghausen

It will increase pressure on Chalmers, who on Monday said he took responsibility for the government’s economic plan while also noting it was the RBA’s interest rate settings, combined with a poor global economic outlook, that were leaving many people feeling financial pressure.

The economy expanded by just 0.1 per cent through the first three months of the year, taking annual growth down to 1.1 per cent. But the June-quarter national accounts, to be released on Wednesday, are now tipped by economists to show growth slipping as low as 0.8 per cent over the year.

That would be the worst annual growth rate since late 2020, when the economy contracted by 0.4 per cent. On a per capita basis, the economy is on track for a fifth consecutive quarterly contraction, the worst performance since the early 1980s.

Speaking in Perth, Chalmers said this week’s numbers would be weak largely because of the pressures facing the nation’s households.

Denying opposition claims he was at loggerheads with the Reserve Bank, Chalmers said it was self-evident that higher interest rates were slowing the economy.

“I take responsibility for our economic plan and for doing what we can to help the Reserve Bank in the fight against inflation,” he said.

“We have the same objectives. We have slightly different responsibilities. But our interests are aligned – getting on top of inflation without smashing an economy which is already weak when people are already under a lot of pressure.”

Those pressures are increasingly evident in the jobs market.

The closely watched ANZ-Indeed measure of job ads fell by 2.1 per cent in August, its seventh consecutive monthly drop. It has now tumbled by 15.3 per cent this year and is almost 23 per cent lower than at the same time in 2023.

Indeed senior economist Callam Pickering said while job creation was continuing to soften, it was still strong enough to help households deal with cost-of-living pressures.

“While most labour market measures remain healthy, the overall trend is clear: conditions are softening,” he said.

The business sector is also feeling the pinch.

Falling iron ore prices have hit company profits.

Data from the Australian Bureau of Statistics showed inventories increased by just 0.1 per cent in the quarter. This is expected to strip about 0.5 percentage points from growth in the June quarter. It was a large jump in inventories in the March quarter that helped the economy expand during the first three months of the year.

The same figures showed a slowdown in overall wages, which lifted by 0.7 per cent in the quarter. These figures are affected by total jobs growth as more people in work contribute to the nation’s overall wage bill.

But company profits fell by 5.3 per cent in the quarter to be 3.9 per cent lower over the year.

The biggest fall was in mining, where profits dropped 11 per cent as prices fell for key commodities including iron ore and coal.

But wholesale trade companies (down 7 per cent) and the finance and insurance sector (down 6 per cent) also suffered falls in profits in a sign the overall economy continues to soften.

There were some positive signs, with the bureau reporting a 10.4 per cent increase in building approvals through July.

The result was driven by a 32.1 per cent jump in approvals for units and apartments. Standalone house approvals increased by 0.6 per cent to be 13.1 per cent stronger than a year ago.

Oxford Economics Australia senior economist Maree Kilroy said it appeared the worst for house approvals had passed, with an increase likely over the next 12 months.

The RBA’s higher interest rates appear to be bringing down price pressures.

The Melbourne Institute’s monthly inflation gauge, which closely tracks the official measure of inflation, showed a 0.1 per cent fall in prices through August. It was the first fall in six months and took the annual inflation rate to a three-year low of 2.5 per cent, right in the middle of the RBA’s 2-3 per cent inflation target.

The institute’s measure of underlying inflation was flat in August, the weakest result in 10 months. The annual rate of underlying inflation fell to a 32-month low of 2.2 per cent after being at 2.6 per cent in July

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