The September quarter GDP figure of 0.2% growth – down from 0.4% in the June quarter – was weaker than expected and confirms the impact of the interest rate rises over the past year in slowing the economy. The National Accounts figures justify yesterday’s rate pause by the RBA and must question whether further rate rises are needed. Annually, the quarterly figure represented a fall in the fate of growth to 2.1% - and only large-scale migration is keeping it positive, although per capita consumption is in decline.
The RBA will also have its eyes on the fact that compensation of employees (COE) rose 2.6%, the largest quarterly rise in a year, although this was in line with employment growth. But labour productivity picked up only marginally, with GDP per hour worked increasing by 0.9% q/q as hours worked dropped by 0.6% q/q. Through the year, labour productivity was still 2.1% lower, yet this gap has at least fallen since the trough of -5.3% in the March quarter 2023. The adjustment in hours worked is likely to have a positive impact on labour productivity in the near term.
Domestic demand has lifted slightly during the quarter but this is mostly propped up by public sector spending and investment. Household consumption remained flat, while private sector investment activity was weak but at least positive, driven primarily from the recovery in non-dwelling construction activity.
Household final consumption expenditure flatlined (0% q/q) with rises observed in purchase of vehicles (+13%), transport services (+3.9%), rent and other dwelling services (+0.4%), and furnishings and household equipment (+1.6%). The largest fall in household consumption was in electricity, gas, and other fuels (-16.9%) as government benefits and rebates lowered household spending on these essential services. Other reductions included other goods and services (-2.8%), recreation and culture (-1.1%), and cigarettes and tobacco (-3.9%).
Government final consumption expenditure rose 1.1% in September quarter after a 0.6 per cent increase in the June quarter because of the introduction of a number of social benefits such as the Energy Bill Relief Fund rebates, extra payment for childcare or aged care. Public gross fixed capital formation increased significantly, by 0.7% and made up the bulk of growth in total gross fixed capital formation, which grew by 1.1% as Commonwealth, state and territory corporations scaled up investment in transport, communication and utilities projects.
Exports of goods and services fell by 0.7% driven by falls in exports of coal (-6.8%), mineral ores (-3.4%), other mineral fuels (-6.3%), and cereals (-8.2%), which were offset by rises in exports of other rural goods (+24%), non-monetary gold (+12.2%), travel services (+4.4%), and meat (+10.2%). Exports of travel services continued its recovery with the September quarter seeing stronger tourism activity as Australia hosted the FIFA Women’s World Cup.
- Goods and services imports increased by 2.1% q/q, driven by rises in imports of travel services (+19.5%), industrial transport equipment (+16.5%), transportation services (+10.1%), and non-industrial transport equipment (+4.6%). Falls were observed in processed industrial supplies (-5.5%), civil aircraft and confidentialised items (-46.6%), fuels and lubricants (-2.9%), food, beverages and tobacco (-6.5%). Imports of travel services rose strongly as more Australians travelled overseas during the summer in the Northern Hemisphere.
- 12 out of 19 industries experienced increases in production this quarter. The Information Media and Telecommunications recorded the largest growth (+2.6%), followed by Arts and Recreation Services (+2.0%) and Health care and social assistance (+1.8%). While Agriculture, Forestry and Fishing fell the most (-3.5%), mostly due to dryer El Nino condition.
- Gross operating surplus (GOS) decline by 1.5%. The weakness was driven by private non-financial corporations sector (-4.5%) as profits for the Mining industry declined. The falls were partly offset by Dwellings GOS owned by persons (+3.5%), as house prices recover, and Financial corporations (+2.1%), as banks’ margins increased with fixed rate mortgages rolled onto higher variable rates.
- Taxes on production and imports increased by 5,4% due to a rise in taxes on international trade, GST and payroll taxes. The rise in taxes on international trade was due to increased import volumes of tobacco and a rise in tobacco excise tax. Subsidies on production fell 16.4% driven by a decrease in research and development tax incentive, and state housing and flood related subsidies.
For further information
Ian Welch
iwelch@kpmg.com.au
0400 818 891