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Australia's economy appears to be slowing much more rapidly than expected, after a spurt of growth in the first half of the year.
Key points:
- Then economy grew at its slowest annual pace in two years in the September quarter, well below market expectations.
- Key factors in the domestic economy in household consumption and construction were softer than expected
- Household income per capita fell and the savings rate the lowest since 2007
Gross Domestic Product (GDP) grew by 0.3 per cent in the three months to September, or 2.8 per cent over the year.
It is the weakest economic expansion in two years and not the result the Reserve Bank would be looking for in its quest to raise interest rates.
The annual growth figure is also a significant step down from the 3.4 per cent growth recorded in the second quarter National Accounts from the Bureau of Statistics.
The result is well below the analyst consensus of 3.3 per cent and reflects weaker than expected construction and capital expenditure data, as well as a general softening in the housing sector.
Despite a strong contribution from net exports and goverment spending, it appears the domestic economy has softened markedly.
The construction sector was a drag on growth while the retail and manufacturing sectors were flat.
Household spending soft
IFM economist Alex Joiner said there's not much good news from households, with spending growth at a soft 0.3 per cent over the quarter and 2.5 per cent over the year.
The household savings rate, as a share of household income, has slipped to just 2.4 per cent.
The savings rate is at its lowest level since 2007, before the global financial crisis, and indicates consumers are digging into their savings to pay for essentials.
"Household income per capita was slightly negative in the quarter and just up 1.2 per cent over the year — hard to see them hit with a rate hike any time soon," Dr Joiner said.
Capital Economics analyst Marcel Thieliant said the figures point to a considerable undershooting of RBA expectations.
"Even if GDP growth rebounds to 0.6 over the quarter in the fourth quarter, it would only increase by 2.9 per cent this year," Mr Thieliant said.
"That's much weaker than the RBA's forecast of a 3.5 per cent increase, and we believe that the full effects of falling house prices and tighter credit conditions have yet to be felt.
"The upshot is that we expect GDP growth to slow further to 2.5 per cent in 2019."
Living standards are falling: RBC
RBC's Su-Lin Ong said a degree of resilience in household consumption appeared to be at the expense of savings.
"A decline in real net national disposable income per capita [-0.3 per cent] with year-on-year [growth] easing to 1.3 per cent suggest a loss of wealth and lower living standards," Ms Ong said.
ANZ's Felicity Emmett said the persistent weakness in wages growth was a surprising factor in the latest National Accounts.
"The GDP measure of non-farm average wages rose just 0.2 per cent over the quarter following a 0.1 per cent rise in the first quarter," Ms Emmett noted.
"Annual [wages] growth is now at just 1.2 per cent, and slowing.
"Once again, this is a disappointing outcome, and suggests that the tighter labour market is putting very little pressure on labour costs."
Topics: business-economics-and-finance, economic-trends, australia
First posted