Today’s National Accounts confirm growth in the Australian economy was flat in the first three months of the year.
The primary cause of this very weak growth was higher interest rates, combined with moderating but persistent inflation and ongoing global uncertainty.
These new numbers show we got the Budget right.
This justifies the Government’s approach to fighting inflation without smashing the economy, when growth was already soft and people were already under pressure.
Treasury expected our economy to be weak so it is not surprising to see the economy barely grew in the quarter.
Economic growth was 0.1 per cent in the March quarter 2024, to be 1.1 per cent higher though the year, according to data by the Australian Bureau of Statistics.
This was below the median market expectation, but any growth is welcome in the domestic and global circumstances we confront.
Many economies around the world are feeling the impact of higher interest rates and high but moderating inflation.
Over the past year, around three quarters of OECD economies have recorded a negative quarter while Australia has avoided one to date.
Against this difficult global backdrop, Australia recorded faster annual growth than most major advanced economies – faster than Canada, Italy, the United Kingdom, Japan and Germany. Since the election, Australia has also recorded faster employment growth than any major advanced economy.
These National Accounts are another reminder of the pressures people are under.
Household consumption remained subdued, growing by 0.4 per cent in the quarter, to be 1.3 per cent higher through the year. Quarterly consumption has been growing below its decade average for the past five quarters.
Australians prioritised spending on essentials, and needed to cover an extra $30 billion in mortgage interest costs in the quarter due to the impact of higher interest rates.
Essential household spending grew by 0.5 per cent in the quarter, faster than discretionary spending at 0.3 per cent.
Discretionary spending barely grew in annual terms – up just 0.1 per cent through the year compared with 2.1 per cent for essentials.
Households are saving even less of their income with the household savings ratio falling to 0.9 per cent in the March quarter, down from 1.6 per cent in the December quarter. Since the second half of last year, the household saving ratio has been around rates not seen in over fifteen years.
Higher interest rates are also weighing on dwelling investment, which fell by 0.5 per cent in the quarter to be 3.4 per cent lower through the year.
Household disposable income was up 1.1 per cent in the quarter, to be 5.2 per cent higher through the year.
This was underpinned by growth in compensation of employees, which grew 1.0 per cent in the quarter to be up 7.1 per cent through the year.
The Government’s support for wage rises, including the decision to increase the minimum and award wages from the Fair Work Commission this week, will provide further support for household incomes.
Income tax payable fell for the second consecutive quarter and is now $4.2 billion lower than where it was two quarters ago. Workers will keep even more of what they earn from 1 July when the Albanese Government’s cost‑of‑living tax cuts begin flowing for every one of Australia’s 13.6 million taxpayers.
While the Australian economy has slowed, business investment has remained resilient over the past year.
New business investment fell by 0.7 per cent this quarter but is up by a solid 3.9 per cent through the year. The quarterly fall reflects the lumpy nature of business investment, with some large construction projects wrapping up in the December quarter. Machinery and equipment investment returned to solid growth, rising 2.0 per cent in the quarter.
New business investment has improved since the Government came to office, growing by an annualised average of 6.6 per cent. Under our predecessors, average growth went backwards by 1.5 per cent per year.
After growing for two consecutive quarters, productivity growth was flat in the quarter. Quarterly movements in productivity can be volatile and we know it will take some time to turn around the longstanding weakness in productivity growth.
Continued growth in health services and assistance to households meant that new public final demand contributed 0.2 percentage points to growth in the quarter. The quarterly result was supported by the Government’s tripling of the bulk‑billing incentive and energy bill relief.
Strong growth in imports drove a 0.9 percentage point detraction to growth from net exports in the quarter.
Much of this was offset by a build‑up of inventories, which contributed 0.7 percentage points to growth in the quarter.
Despite everything coming at us from around the world and the pressure people are under, the Australian economy faces these challenges from a position of relative strength.
We have a unique combination of low unemployment, a return to real wages growth, 820,000 jobs have been created since we came to office and we’re expecting back‑to‑back surpluses for the first time in almost two decades.
Our responsible, methodical and measured approach to the budget is keeping pressure off inflation without crunching the economy.
We are striking the right balance between addressing inflation, providing cost of living relief, supporting sustainable economic growth and strengthening our public finances.
Today’s data confirms our responsible fiscal strategy is exactly right for the combination of challenges that we confront together in the economy.