New data backs Treasurer Jim Chalmers' warning to Australians to expect 'soft' growth in the economy when GDP is released on Wednesday.
A majority of economists anticipate modest growth in Australia's GDP for the second quarter of 2024, based on recent data. While initial forecasts were more conservative, subsequent analyses have led to upward revisions.
The Australian Bureau of Statistics have released the "Balance of Payments and International Investment Position" data for the June Quarter, revealing a significant deterioration in Australia's current account balance. The deficit widened by a substantial $4.4 billion to reach $10.7 billion, marking a concerning trend.
Given the current economic challenges, with rising living costs, soaring housing prices, and a stagnant job market despite low unemployment rates, hearing about a $10 billion deficit may be particularly concerning.
Despite the negative implications, the situation is not as bad as it seems. Our imports are more expensive than our exports, primarily because of decreased iron ore and coal prices. The cost of imports, however, has remained unchanged.
The positive news is that Australia's international debt obligations have decreased to their lowest level since the June quarter of 2009. This decline, amounting to $21.3 billion, is primarily due to a rise in global stock markets, which has increased the value of Australian investments abroad.
GDP and building approvals - what does this mean for Australians?
- GDP (Gross Domestic Product): This key metric measures the total value of goods and services produced in Australia over a specific period. A forthcoming release for the June Quarter will provide a clearer picture of the economy's current trajectory. A slight increase suggests modest growth, but not a significant upswing.
- Building Approvals: A recent increase in approvals for new dwellings (14,797) doesn't necessarily translate to immediate construction. It signifies that developers have secured permission to proceed, but the ongoing issue of builder insolvencies casts some doubt on how many projects will materialise.
What are Australians doing to improve their position?
With rising interest rates and cost-of-living pressures, many Australians are looking for ways to navigate the current economic climate.
According NAB, just under 70 per cent of all new eligible customers are taking up an offset account with their home loan, up from 50% just two years ago.
The total amount of money NAB customers have in their offsets has grown 55% since the pandemic, from $29 billion in 2020 to more than $45 billion this year.
An offset account is a way of reducing the interest owed on a home loan by having money sit in an offset account, the total of the offset account is taken away from the balance of the loan and that is the amount that interest is payable on.
Offsets have been the secret weapon through a higher cost of living and interest rate rises and theyve helped mortgage holders get ahead and stay ahead.
Mr Kerr believes that getting your salary deposited directly into your offset account, consolidating your savings into one account and cutting back on spending will help borrowers get through the increased interest rates and cost of living issues we are dealing with.
"We've seen more than half of Australians cut back on things like coffees and lunches out, entertainment and car trips and they're saving around $320 each month or $3,840 a year.
"4 in 10 Australians say they're using that money to top up their savings or offsets, which means they're helping shave interest and time off their mortgage," Mr Kerr said.
Whilst we wait for a reduction in interest rates, not likely until early 2025, an offset account and some savvy saving can be the best way to reduce your costs temporarily.
