Australia’s second-quarter GDP growth was only 0.2%, a persistently weak economy.
The growth rate was consistent with economists’ predictions, but not enough to offset the recent slowdown.
The growth rate year-on-year slowed to just 1%. This is the lowest annual rate since the recession of the early 1990s, when the Covid-19 pandemic was excluded.
The trend towards a weaker economic performance has continued throughout the year 2024.
Spending by the government, which rose by 1,4% in particular for health services, was responsible for most of this modest growth.
This was insufficient to overcome the wider economic challenges that consumers and business faced.
Australia’s economy remains fragile as consumers hold back their spending due to high borrowing costs.
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The GDP grows at 1% per year
Australia’s GDP growth in the second-quarter fell from a revised upwardly 1.3% to just 1%.
The slowdown is a reflection of a weaker economic pattern, which has been characterized by high rates of interest and low productivity growth.
This is because the current rate of growth in the Australian economy has been significantly below the average for the past decade of 2,4%.
Reserve Bank of Australia has maintained restrictive monetary policies to fight inflation. The cash rate is currently at its highest level in 12 years, 4.45%.
The RBA has a difficult task to accomplish, as despite its efforts the inflation rate in Australia is “stickier”.
Andrew Hauser, her deputy and the governor’s representative, has echoed this sentiment.
Spending on household goods and services declines.
The consumer behavior is a major factor behind Australia’s slowdown. The second quarter saw a 0.2% drop in household spending, which accounted for 0.1 points of GDP growth.
Transport services were particularly affected, with the first decline in air travel since September 2021.
In June 2020 the household saving ratio was 0.6%, a significant drop from 24.1%, which was its previous peak. This reflects the reduced financial cushion that Australian households have.
The growth of productivity has been another concern. GDP per hour was down in the second half.
The policy makers face a difficult task, since productivity growth is crucial for raising living standards and increasing wages.
Andrew Canobi is a director of fixed income at Franklin Templeton. He noted that Australia’s “weak productivity” and its “high-cost malaise” will likely result in high rates for a long time.
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Government spending rises
The government spending report was one of the bright spots, with a contribution to growth of 0.3 percent points. The increase in GDP was largely due to investments made into health care and other programs.
The overall growth rate remained low despite the boost. Insufficient government spending was made to offset the decreases in consumer expenditures and other areas.
The RBA is likely to begin reducing interest rates by February 2025. However, any reductions are expected to be modest.
Other central banks such as the Federal Reserve Bank of the United States, the European Central Bank and those from New Zealand and Britain are already on the path to easing their monetary policies.
James McIntyre, a Bloomberg Economics analyst, has predicted that the growth rate will remain sluggish and GDP per capita is likely to continue contracting in 2024’s second half.
Mixed signals in economic data
The data released on Wednesday painted a picture that was not entirely positive.
The per capita GDP declined for the sixth quarter in a row, falling by 0.4%. This was due to a 5.6% increase in services exports, mainly driven by an increased expenditure on travel related services that are aimed at education.
The increase in gross disposable income was 0.9% and outpaced the rise of 0.7% in nominal spending. The higher incomes of households were offset in part by the increased mortgage and income tax payments.
Jim Chalmers, Treasurer, described growth figures as being “really weak,” blaming global economic uncertainty, rising interest rates and persistent, but moderated inflation.
Economic recovery is expected to be slow and will depend on domestic as well as international conditions.
The post Australia’s economy is still sluggish despite consumer spending decreases could be updated as new information becomes available.
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