General scene of the Melbourne Markets in Epping
The economy is expected to again grow by about 0.4 per cent in the September quarter. Image by Stefan Postles/AAP PHOTOS
  • politics

Economy weakens as rising costs take toll on households

Poppy Johnston December 6, 2023

Australia’s economy hit a wall in the September quarter, recording weaker-than-expected quarterly growth and sinking into a per capita recession.

The 0.2 per cent lift in economic output in the three months to September marked a slowdown from the 0.4 per cent in the three months to June.

The result was also much lower than the 0.5 per cent quarterly expansion pencilled in by economists ahead of the Australian Bureau of Statistics’ quarterly national accounts release.

On an annual basis, gross domestic product as logged by the bureau lifted 2.1 per cent.

The nation also fell into a per capita recession, with GDP per capita falling 0.5 per cent after a 0.1 per cent decline in June.

Volunteers scramble to organise food and personal hygiene supplies
 Christmas could be bleak for households with incomes under intense pressure amid high inflation. Image by James Ross/AAP PHOTOS 

ABS head of national accounts Katherine Keenan said growth had slowed during the year.

“Government spending and capital investment were the main drivers of GDP growth this quarter,” she said.

Household spending was flat over the quarter, with the bureau noting sustained cost of living pressures and higher interest rates – which push mortgage repayments higher – were taking a toll.

Ms Keenan said government benefits and rebates, including energy bill relief, were partly responsible for softer household spending.

But this spending was essentially shuffled into the government expenditure bucket, which rose 1.1 per cent, to be up from a 0.6 per cent lift in the June quarter.

The household saving ratio fell to 1.1 per cent, its lowest level since 2007.

Treasurer Jim Chalmers said this was “one of the ways we know that people are doing it especially tough”.

“People in aggregate are saving a little bit, but no longer saving a lot,” he told reporters on Wednesday.

Dr Chalmers said a slowing economy was a consequence of higher interest rates and global uncertainty.

Yet the 0.2 per cent quarterly figure needed to be “put into perspective”, he said. 

Australian Treasurer Jim Chalmers
 Jim Chalmers says higher interest rates are one of the reasons the economy is slowing. Image by Lukas Coch/AAP PHOTOS 

The treasurer noted Australia was shrinking the gender pay gap, making “welcome and encouraging” progress on inflation and showing ongoing resilience in the labour market. 

Shadow treasurer Angus Taylor said record high population growth was the only thing holding up the economy.

“(The treasurer) needs to take responsibility for an economy that is shuddering to a halt,” he told reporters on Wednesday.

The quarterly economic health check follows the Reserve Bank’s decision to keep interest rates on hold at 4.35 per cent at the final board meeting of the year.

The central bank has been lifting interest rates to bring down still-high inflation and aims to keep curbing inflation while keeping the economy growing and preserving gains in the labour market.

Commonwealth Bank head of Australian economics Gareth Aird said the rate hikes were working to slow demand.

Mr Aird said the September numbers were softer than the RBA had been anticipating and more timely indicators of economic activity made for sobering reading.

“Indeed there is now a clear risk that real GDP growth prints negative in the December quarter of 2023,” he wrote in a note.

The economist said the national accounts numbers gave him more confidence interest rate cuts would start as early as September next year, with the risks previously skewed towards a later start date.