(Dec 6): Australia’s economy surprisingly slowed sharply in the three months through September, as consumers hunkered down and further depleted their savings, in the face of rising borrowing costs and elevated prices.
Gross domestic product (GDP) advanced 0.2% from the prior quarter versus economists’ estimate of a 0.5% gain, Australian Bureau of Statistics data showed on Wednesday. From a year earlier, the economy grew 2.1% from a downwardly revised 2%.
The slowdown was driven primarily by the interest-rate sensitive sectors of the economy, such as residential construction and household consumption. The Reserve Bank of Australia (RBA) kept rates unchanged at a 12-year high of 4.35% this week, after hiking the previous month, in a move that may draw scrutiny as growth slows.
“Australia’s economy is set to slow in 2024, as the full impact of the RBA’s 425 basis points of rate hikes hits households,” said James McIntyre at Bloomberg Economics who forecast Wednesday’s results. “Surging population growth has kept the economy out of a recession so far, but a slowdown in migration flows could send GDP into reverse if the RBA keeps rates higher for longer.”
Wednesday’s subdued data did little to move the Australian dollar and government bonds, with expectations already baked in that the RBA is all but done in the current tightening cycle.
The figures are likely to ease concerns about demand-driven inflation pressures, suggesting that the RBA can remain in a holding pattern for a little while in order to assess the economy.
The central bank predicts a further slowdown in response to its policy tightening between May 2022 and November 2023. The latest staff forecasts show the economic expansion will ease to 1.5% by year end, compared with a decade average of 2.4%.
“Today’s (Wednesday) data don’t close the book on further rate hikes, but they do make it harder for the RBA to justify further hikes without some stronger accompanying evidence that the inflation battle is stalling,” said Robert Carnell, the regional head of research for Asia-Pacific at ING.
Wednesday’s data showed the household savings ratio declined to the lowest level since 2007. It slumped to 1.1%, the eighth straight quarterly decline, from a downwardly revised 2.8%.
“We expect to see some further moderation to annual growth over the year ahead,” Treasurer Jim Chalmers said in a statement. “In these difficult times, households are under acute pressure from the cost of living and the burden of higher interest rates.”
Household spending was flat in the third quarter, while government expenditure jumped 1.1%, adding 0.2 percentage point to GDP.
Economists are ascribing about a 40% probability of a recession over the next 12 months.
“Our concern remains that the RBA has tightened more than necessary with a high risk of recession next year,” said Shane Oliver, the chief economist of AMP Ltd. “The key risk remains consumer spending, where various indicators continue to point down.”
Source: TheEdge - 7 Dec 2023
Created by edgeinvest | Nov 20, 2024
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Created by edgeinvest | Nov 20, 2024
Created by edgeinvest | Nov 20, 2024
Created by edgeinvest | Nov 20, 2024