As predicted by many economists and warned by the Treasurer Jim Chalmers, Australia saw a very small growth in the GDP for the June Quarter as the ABS released its Australian National Accounts data.
There was a 0.2 per cent increase in Australia's GDP over the June Quarter and a 1.5 per cent increase in the GDP for the 2023-24 financial year.
That is the lowest growth rate seen in the economy since 1991-92, not including the periods affected by the COVID-19 pandemic.
In response to the release of this data, the Treasurer re-iterated his stance that the government's plan is working and that this data "give us more confidence in the economic judgments we've made".
Really soft growth reflects the impacts of global economic uncertainty, higher interest rates and persistent but moderating inflation. This combination of challenges is weighing heavily on households and the data shows Australians are continuing to limit their consumption and curb spending"
Why is our economy growing slowly?
The economy has grown quite slowly since the pandemic ended, impacted by rising costs of living, international economies struggling and increasing interest rates.
Let's look at some of the factors that make up the GDP: household spending, household savings, government spending and investments.
Household spending fell by 0.2 per cent, with a fall in transport services, especially air travel, being the main driver for the fall, whilst spending on furnishings and household equipment rose by 4 per cent likely due to the end of financial year sales.
Household saving was unchanged from the previous quarter, with gross disposable income outpacing the growth in nominal household consumption.
Government spending rose by 1.4 per cent, which could have implications on the inflation numbers, as one of the major concerns for the inflation rate being above the target range is high government spending.
National non-defence spending drove the growth this quarter and grew for the seventh consecutive quarter. The rise in June was due to continued strength in social benefits programs for health services. State and local expenditure also contributed to growth with a rise in employee expenses
Australia also saw total investment fall by 0.1 per cent for the quarter, with reduced purchasing of machinery and equipment driven by a reduction in agriculture and retail investment, whilst the property market was hot enough to drive ownership transfer costs up 3.9 per cent.
The banks have their say
Prior to the release of this data, the Big Four banks all put forward their predictions as to what the GDP growth numbers will be.
CBA expected a 0.4 per cent growth (after originally forecasting a 0.2 per cent growth), NAB and Westpac predicted 0.3 per cent growth whilst ANZ forecasted a 0.1 per cent growth rate after originally predicting a 0.2 per cent growth rate.
Adam Boyton, Head of Australian Economics, and Catherine Birch, senior economist, from ANZ did not think that this result will have much impact on the RBA's decision making, even if household spending being weaker than originally forecasted.
GDP is lagged and the Stage 3 tax cuts and cost-of-living relief measures will materially boost household disposable income in Q3, which should see a gradual lift in household spending growth
Meanwhile at Wesptac, Senior Economist Pat Bustamante stated the bulk of the growth in that 0.2 per cent figure came from government spending as well as the spending from foreign students and visitors.
Mr Bustamante also highlighted weakening private spending, net exports and inventories remaining steady and the fact that cost pressures were moderating as key factors in the growth rate.
How will this affect interest rates?
GDP growth is arguably the biggest tool the RBA can use to determine how the economy is travelling and will have a major impact on their decision on the 24th of September.
Slow economic growth might be the key to keep interest rates at their current rate, especially with the next monthly inflation numbers not released until after the RBA meeting.
Given the inflation numbers were mostly in line with what the RBA were looking for, and the economy is not exactly fully firing, it is hard to see any data that would suggest a rate rise for the next meeting.
I would expect this have a flow on effect to the property market, with increased consumer confidence off the back of what is likely a steadying interest rate.
Since spring is usually one of the busiest seasons for property sales, I'd expect this news to be a relief to potential homebuyers who were thinking of getting into the market this month.
We are still three weeks away from the next interest rate decision and a lot can change in that time, but for now I am expecting no change at the next RBA meeting.
