National accounts data won’t impact cash rate, expert says
The ABS has released its December quarterly economic data and it paints a mixed picture. Economic growth is slow but steady, while labour productivity continues to dog outputs.
BDO economics partner, Anders Magnusson, said the Australian Bureau of Statistics’ (ABS) latest national accounts data, released yesterday, will not affect the Reserve Bank of Australia’s (RBA) next cash rate decision given it largely accords with their forecasting.
“The Australian economy is doing well with positive GDP growth registered for the ninth consecutive quarter, unemployment at historical lows, and inflation continuing to decline,” noted Magnusson.
That said, after a year of slowing growth, the national GDP grew by only 0.2 per cent – the tied lowest since September 2021.
The growth, slow as it was, came off the back of government spending and investment from private business, said ABS head of national accounts, Katherine Keenan.
In the 12 months from December 2022, GDP grew by 1.5 per cent to close at $609.8 billion. Per capita, GDP fell by 1 per cent over the year, due largely to “strong population growth”. The ABS will release population data later this month, however, annual population growth was 2.4 per cent in June 2023.
At the industry level, agriculture, forestry and fishing production fell by 3.4 per cent and accommodation and food services fell by 3.2 per cent, while manufacturing output declined by 1.2 per cent. All three sectors contributed -0.1 per cent to national GDP growth.
Relatively strong growth was recorded in professional, scientific and technical services (1.2 per cent), mining and public administration and safety (both at 1 per cent).
Increasing government expenditure (of 0.6 per cent) contributed to the quarter’s slow GDP growth, as spending on national non-defence increased by 2 per cent. That said, defence spending fell by 3.5 per cent following a strong September quarter.
Wages grew by 0.9 per cent over the quarter, and 4.2 per cent over the year – marking the highest annual growth since the March quarter of 2009. Overall compensation of employees grew by 1.4 per cent over the quarter, or 8.4 per cent over the year – driven more by strong public sector compensation hikes (3.3 per cent) than private (0.9 per cent).
Public sector compensation increases came from “new bargaining agreements, more employees, and the referendum on an Aboriginal and Torres Strait Islander Voice contributing to growth,” said the ABS.
Of major concern, said Magnusson, is the dwindling labour productivity recorded over the past two years.
“Australia had high labour productivity levels till the mid-2000s, translating into high living standards backed by a high capital-labour ratio,” he said.
Since then, labour productivity has fallen sharply, particularly in the last two years, meaning “workers are doing less with less”, said Magnusson, who suggested an investment solution, perhaps in the form of artificial intelligence, was needed.
Though people earned more last quarter, inflation continued to exert pressure with the consumer price index rising by 4.1 per cent across the year or 0.6 per cent over the quarter.
Prices for household consumption increased by 0.8 per cent driven mostly by increases in the costs of services at 1.3 per cent. Prices of goods declined for the first time since the September quarter of 2021 during which supply chain issues were temporarily relieved, said the ABS.
Given inflationary pressures, it is unsurprising that discretionary spending fell while households spent more on essentials like electricity, food, rent and healthcare.
For instance, household spending on accommodation and food services decreased by 3.2 per cent, arts and recreation spending declined by 0.7 per cent, while electricity, gas, water and waste services spending increased by 0.9 per cent.
For the first time in nine quarters, the household incomes outpaced expenses. The ratio of savings to income increased by 3.2 per cent thanks to lower income taxes relative to prior quarters, said the ABS.
“Compensation of employees and government payments were the drivers of the increase in income received by households in December,” said Keenan.
“Government payments were raised with increase to the base rates of payments across a variety of benefits such as JobSeeker and youth allowance; an increase in Commonwealth Rent Assistance; and the standard indexation of benefits that occurs in late September.”
