Slowest growth since covid lockdowns

By Poppy Johnston in Canberra

THE Australian economy is starting to fade as higher interest rates, elevated consumer prices and the slowing global economy make their mark. 

Gross domestic product as calculated by the Australian Bureau of Statistics softened to 0.2 per cent quarter growth in the March quarter, down from 0.6 per cent in the three months to December.

The numbers came in slightly lower than the 0.3 per cent quarterly rise expected by markets and marked the slowest pace of growth since the COVID-19 Delta lockdowns of September 2021.

On an annual basis, the economy grew by 2.3 per cent.

ABS head of national accounts Katherine Keenan said public and private investment drove economic growth over the quarter.

Business investment in equipment, such as machinery, jumped six per cent, and infrastructure spending grew 3.1 per cent.

The bureau said much of this infrastructure spending was on the clean energy transition as several wind, solar and battery projects got underway,

Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said the growth in business investment was encouraging but came off the back of a very weak December quarter.

“The March quarter growth in part likely reflects the clearing of some supply bottlenecks,” he advised.

Working in the other direction was a slowdown in new home building, which fell 1.3 per cent.

Net trade also detracted 0.2 percentage points from GDP.

Household spending lifted an insipid 0.2 per cent, with the bulk of that shopping concentrated on essential items such as food.

Spending on discretionary items fell for the first time since the September quarter of 2019, sinking one per cent, as interest rate hikes and cost of living pressures weighed on household budgets.

Further to that, households were able to stash away the smallest proportion of household income in 15 years.

Just 3.7 per cent of incomes were saved over the quarter.

“Households’ ability to fund consumption growth by saving less will be limited from here,” Mr Langcake warned.

But workers have been able to demand more money thanks to the tight jobs market, with employee compensation – a broader measure than the wage price index – accelerating to 2.4 per cent over the quarter.

This was up from two per cent in the December quarter.

Treasurer Jim Chalmers said the national account dataset confirmed that economic momentum was moderating as expected.

“The numbers confirm what Australians already know – that household budgets are under pressure from rising interest rates and higher cost of living,” Dr Chalmers said.

The treasurer said the government was focused on providing financial relief without fuelling inflation, preparing broken supply chains and investing in the productive capacity of the economy.

Shadow treasurer Angus Taylor said the government was overseeing an economy that was shuddering to a halt.

“This is a tough time for Australians,” he told reports in Townsville.

“Meanwhile, we have a government that doesn’t have the plan or the priorities to fix these problems.”

The health check on the economy follows another interest rate rise from the Reserve Bank.

The central bank hiked by another 25 basis points, taking the cash rate to 4.1 per cent.

RBA governor Philip Lowe used a public appearance on Wednesday to explain his decision, noting that higher-than-forecast consumer prices, wages and housing market data were threatening the inflation outlook.

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