Australian economy expands by 0.6%, a little softer than expected. The impacts of high inflation and higher interest rates are becoming apparent – notably, the real estate sector on lower turnover subtracted 0.2ppts from activity in the period.
The Australian economy expanded by 0.6% in the September quarter.
That was a little softer than anticipated, market median 0.7% and Westpac 0.8%.
Annual growth is 5.9%. The level of activity is 6.5% above levels prior to the pandemic, at the end of 2019.
Key surprise: The real estate sector – in the form of Ownership Transfer Costs (turnover in the property sector) plunged by -11.2%, subtracting 0.2ppts from activity. We had allowed for a more modest fall (recent quarterly outcomes have been -1.1%, -2.5% and -2.1%).
This provides further evidence that the Australian economy is in transition. Earlier tailwinds are fading, and the impacts of high inflation and higher interest rates are beginning to become apparent. A sharp economic slowdown is in prospect for 2023.
Hours worked: The National Accounts estimate that hours worked expanded by only 0.1% – even a touch softer than the Labour Force survey, which reported a rise of 0.2%. Supply constraints are a factor, with the economy bumping up against capacity constraints. In addition, in the September quarter, there was elevated sick leave (around covid) and elevated levels of annual leave.
Consumer spending grew by 1.1% in the quarter, broadly meeting our expectations.
The ABS report that this was driven by discretionary goods and services – as the reopening effect (which was greatest over the first half of the year) extended into the September quarter.
Hotels, cafes and restaurants (+5.5%) and transport services (+13.9%) led the increases as COVID-related impacts eased, aiding the recovery of domestic and international tourism-related activity. Purchase of vehicles (+10.1%) also contributed to the rise as supply constraints eased and order backlogs were fulfilled.
The household saving ratio declined from 8.3% to 6.9%, returning towards levels seen prior to the pandemic. Household saving fell as the rise in household spending outpaced growth in gross disposable income.
Gross disposable income rose 1.6%, driven by labour income (COE). Non-labour income also grew with property income received by households up 9.5%. Offsetting this was income payable growth of 5.2%. This was driven by interest payable on dwellings up 36.0%, in line with interest rate rises during the quarter.
Expenditure detail:
Domestic demand grew by 0.6% in the quarter.
Net exports subtracted -0.2ppts from activity offset by a positive 0.2ppts contribution from total inventories. Of note, other inventories subtracted 0.2ppts from growth in the period.
Home building activity advanced by a modest 1% in the quarter, with a 3.4% increase in new home building outweighing a 2.2% decline in renovation work.
Business investment grew by 0.7%, with a lift in construction work outweighing a -3.0% decline in equipment spending.
Public demand is cresting at a high level, managing to post only a tepid 0.2% increase. This follows rapid growth up to the March quarter 2022, boosted by the response to the pandemic.
