Treasurer Jim Chalmers delivers warning on ‘quite weak’ GDP growth as inventories plunge

Ahead of key GDP figures to be released later this week, the Treasurer has issued a stark warning.

Australians are being warned to prepare for a shrinking economy, with Treasurer Jim Chalmers cautioning he expects highly anticipated GDP figures will be “quite weak”.

Speaking ahead of key national account figures to be released on Wednesday, the Treasurer said he expected global uncertainty, elevated inflation and tightened monetary policy to weigh on the December quarter results.

“Most people think that the December quarter was quite weak in our economy. I think that too, but it remains to be seen how weak,” Dr Chalmers said on Monday.

The warning follows the release of new data that showed businesses ran down stock over the final three months of 2024 in anticipation of weak demand.

Business inventories fell by 1.7 per cent in the December quarter, the Australian Bureau of Statistics reported on Monday, far weaker than economists’ expectations of a flat result.

The decline in inventories was substantial by historical standards, and is expected to lop a full percentage point off GDP growth over the final three months of 2023.

Treasurer Jim Chalmers said it remained to be seen how weak GDP growth was over the December quarter. Picture: NCA NewsWire / Glenn Campbell

The Treasurer added that the upcoming May budget would address the dual challenges of slowing growth and still-high inflation.

“Certainly the primary focus of our economic plan is on putting downward pressure on inflation, but I think whether it’s here in Australia or indeed around the world, the balance of risks is shifting from a primary focus on inflation before long, to a focus on growth,” he said.

While economists are forecasting the economy will expand by 0.2 per cent in Wednesday’s national accounts data, which would bring annual growth to just 1.4 per cent.

ANZ senior economist Blair Chapman said he expected the result would be buoyed by strength elsewhere in the GDP result.

“We think some of the unexpected decline in inventories might be offset by stronger exports or government spending than we had anticipated,” Mr Chapman said.

The increase in company profits was largely due to a surge in mining profits, up 17.3 per cent. Picture: Supplied.

Wages, salaries, profits rise

Wages and salaries data, which also pointed to a slowing in economic growth, rose by 0.9 per cent, following a 2.7 per cent increase in the September quarter.

Westpac senior economist Andrew Hanlan said the uptick in wages and salaries was a “disappointing” result.

“Given the pressures from high inflation, higher interest rates and additional tax obligations, this points to a further decline in real household disposable income for households,” Mr Hanlan said.

“Declining incomes continue to constrain consumers’ spending power.”

The data also revealed a substantial jump in headline company profits, up 7.4 per cent, however the increase was overwhelmingly due to a surge in mining profits, up 17.3 per cent, buoyed by soaring commodity prices.

Excluding the mining sector, profits were broadly steady at 0.1 per cent, and in some sectors, like retail, posted considerable losses.