Growth tipped to slump to 0.9pc, but don’t expect a rate cut Michael ReadEconomics correspondent
Sep 1, 2024 – 1.03pm
Analysts predict the economy barely grew in the June quarter, as government spending once more props up activity amid ongoing weakness in home building and consumer spending.
But the Reserve Bank of Australia thinks the June quarter national accounts likely represent the nadir of Australia’s two-year growth slump, as falling inflation and an expected pick-up in disposable incomes encourage cautious households to start spending again.
Economists surveyed by Bloomberg forecast GDP figures on Wednesday will show the economy expanded by just 0.2 per cent in the three months to June, causing annual economic growth to slow to 0.9 per cent, from 1.1 per cent.
Outside the pandemic, it would be the slowest rate of annual GDP growth since the early 1990s recession, and the sixth consecutive quarter in which GDP declined on a per-person basis.
The outcome would be in line with the RBA’s official forecasts, and unlikely to bring forward interest rate cuts given the central bank’s ongoing concern about the persistence of high inflation.
“Restrictive monetary policy has clearly worked to slow demand growth in the economy,” Commonwealth Bank head of Australian economics Gareth Aird said.
“This is all part of the RBA’s plan to stay on the narrow path and return inflation to the target band.”
Most economists expect consumer spending barely grew in the June quarter, as households cut back on non-essential spending. Retail trade volumes fell by 0.3 per cent in the three months to June, according to the Australian Bureau of Statistics.
“Consumer spending has broadly flat-lined since the December quarter 2022 due to the squeeze on household budgets from bracket creep, higher interest rates and elevated albeit moderating inflation,” Westpac senior economist Pat Bustamante said.
Residential construction activity is forecast to have changed little in June, as soaring costs reduce demand for renovations and new home building.
Business investment more broadly is expected to contract, after figures released last week showed spending on new machinery and equipment fell by 0.5 per cent in the three months to June.
Economists will refine their GDP forecasts on Monday and Tuesday when the ABS releases data on business profits, government spending and trade figures for the June quarter. Governments to drive growth
With private sector spending growth muted, governments are again forecast to be a key driver of economic activity.
Mr Bustamante said he expected public demand increased by 0.5 per cent in the June quarter as governments worked through a large pipeline of infrastructure projects.
“[Government spending] is expected to remain elevated, with ongoing cost-of-living assistance for households – around rental assistance, cheaper child care and cheaper medicines – showing through as higher public consumption,” Mr Bustamante said.
The RBA flagged in its economic outlook last month that it expected public demand to rise sharply this year because of several spending announcements by the federal and state governments.
However, Treasurer Jim Chalmers has rejected assertions that the rise in government spending is making the RBA’s job harder, and governor Michele Bullock clarified that public demand was “not the main game” for inflation.
Although economic growth has slowed sharply since the RBA started raising interest rates, the central bank still judges that the absolute level of economic activity is still too high relative to what can be sustained without fuelling inflation.
The RBA expects GDP growth to pick up in coming quarters, driven by a rebound in consumer spending and higher government outlays.
The central bank expects annual economic growth to accelerate to 1.7 per cent by December 2024 and to return to trend growth of 2.6 per cent by mid-2025.
Mr Bustamante said domestic demand will gradually improve in the coming quarters.
“Cost-of-living support, tax cuts, moderating inflation and, eventually, lower interest rates will support consumer income and spending. That said, the pace of recovery is expected to be slow,” he said.
