Australian economy records lowest growth in three years as households curb spending

Australia’s economy has experienced its lowest quarterly growth in three years, according to new figures released by the Australian Bureau of Statistics (ABS).

The nation’s gross domestic product (GDP) rose just 0.1% for the three months to March, marking the weakest period of growth since the economy contracted in September 2021.

On an annual basis, the latest growth equates to 1.1%.

Per capita activity down

ABS figures showed that economic activity per person also fell for the fifth consecutive quarter, dropping 0.4% in March and 1.3% through the year.

Economists had predicted quarterly GDP growth to come in at 0.2%, which is still slower than the revised 0.3% pace of the final three months of 2023.

Annual growth was expected to slow to 1.2% from 1.5% in the December quarter.

Rising consumer debt

The sluggish performance has been attributed in part to rising consumer debt and a curb on household spending.

ABS head of national accounts Katherine Keenan said spending had risen by a modest 0.4% in the March quarter.

“Essential categories like electricity, health, rent and food drove growth again this quarter,” she said.

“We also saw increases in some discretionary categories due to overseas travel and spending on gambling, sporting and musical events.”

While spending on electricity and gas was up 4.9%, total household spending on goods was down 0.6% when compared to the corresponding period last year.

Household savings

ABS figures showed that households saved only 0.9% of their income for the three months to end March.

This contributed to total savings remaining below 2% for a year, the first time this has been the case since the same period in 2008.

“Household income grew at its lowest rate since December 2021, reflecting relatively small rises in compensation of employees and investment income received this quarter,” Ms Keenan said.

“Compared to last quarter, the growth in income tax payable did not detract as much from total income payable by households, resulting in a lower household saving ratio.”

Government assistance

Household spending patterns were partially offset by increased government assistance.

Final federal consumption expenditure rose 1% in March with national outlays up 1.2%, while those at the state and local level rose 0.8%.

“Government benefits for households included an increased spend on medical services and some state governments provided energy bill relief payments,” Ms Keenan said.

Policy justification

Treasurer Jim Chalmers said the small GDP growth justified the government’s economic approach.

“The primary cause of this very weak growth was higher interest rates, combined with moderating but persistent inflation and ongoing global uncertainty,” he said.

“This outcome justifies our approach to fighting inflation without devastating the economy, especially when growth was already soft and people were already under pressure.”

Australia is believed to be performing better than other Organisation for Economic Co-operation and Development (OECD) countries.

“Over the past year, around three-quarters of OECD economies have recorded a negative quarter while Australia has avoided one to date [and experienced] faster annual growth than most major advanced economies, including Canada, Italy, the UK, Japan and Germany,” Mr Chalmers said.