A declining construction sector weighed on the domestic economy in the September quarter. (ABC NEWS: PATRICK ROCCA)
The much anticipated turning point in Australia’s economic fortunes still seems some way down the road, with GDP growing at a well below average annual pace of 1.7 per cent.
- GDP growth stepped down from 0.6pc over the quarter to 0.4pc
- Households appear to saving rather than spending their tax returns, as savings rose while discretionary spending saw its weakest growth since the GFC
- Overall growth was propped up by exports and government spending, particularly in health and disability services
The economy grew 0.4 per cent over the September quarter, below expectations and slower than the previous two quarters.
“The economy has continued to grow, however the rate of growth remains well below the long run average,” Australian Bureau of Statistics chief economist Bruce Hockman said.
“The reduction to tax payable did not translate to a rise in discretionary spending, which led to a visible impact to household saving.”
The household saving rate rose to 4.8 per cent.
While households saved more, household spending was insipid — increasing just 0.1 per cent over the quarter, the weakest performance since the global financial crisis.
Separate figures out today show new car sales fell nearly 10 per cent in November compared to a year earlier, with annual car sales posting their biggest decline in a decade.
Dwelling investment was also a major drag, falling 1.7 per cent over the quarter, the fourth consecutive decline as Australia’s record apartment building boom continues its bust.
On the other hand, growth was largely propped up by net exports, which contributed 0.2 percentage points to GDP, and government spending, powered the delivery of health and disability services.
Tax cuts being saved
Federal Treasurer Josh Frydenberg said the figures indicated the economy was on track and benefiting from the recent personal tax cuts.
“Today’s numbers show there has been an increase in economic growth, but what we have seen is the labour market continues to be strong,” Mr Fydenberg said.
“We’ve seen a pick-up in compensation of employees. We’ve seen a good story in terms of net exports, and what is happening with our current account surplus, and, of course, we would like to see consumption to be higher, there is no doubt about that, but obviously
people are getting more money in their pocket through the tax cuts.
“People are getting more money in their pocket through the tax cut, but they’re not spending it all, they are definitely saving, and that has increased.
“The Government’s goal has always been to be that to put more money in the pockets of the Australian people and it is their choice as to whether they spend or save it.”
Domestic economy deteriorated
While annual growth edged up from its decade low of 1.4 per cent in the June quarter, this was largely on the back of the even weaker 2018 September quarter reading dropping out of the calculations.
The data also puts the RBA’s assertion the economy has reached “a gentle turning point” under scrutiny.
The RBA’s most recent forecast had the economy growing at 2.3 per cent over 2019, implying an optimistic 0.7 per cent spurt over the December quarter.
“In our view, the fall in private-sector demand suggests that the underlying health of the economy has deteriorated further and is likely to put upward pressure on the unemployment rate,” NAB’s Kaixin Owyong said.
“The RBA’s latest forecasts shows growth returning above 2 per cent next quarter, and back above 3 per cent by end-2021.
“Those forecasts assume a pick-up in consumer spending and investment, which today’s data show are in poor shape.”