Australia’s economy continued to slow in June quarter, households finding it harder to save

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Australia’s economy has recorded a slower annual growth rate of 2.1 per cent, according to the Australian Bureau of Statistics (ABS).

Economic activity grew by just 0.4 per cent in the June quarter, matching the subdued 0.4 per cent March quarter outcome.

It means the annual pace of growth for the economy has slipped from 2.7 per cent at the end of 2022, to just 2.1 per cent at the end of June, confirming a marked slowdown in the first six months of this year.

However, when you account for the rapid pace of population growth that’s occurring in Australia this year, figures show the amount of economic output per person has now declined for six months in a row.

Measured as GDP per capita, the figures show a decline of 0.3 per cent in the June quarter, following a similar decline of 0.3 per cent in the March quarter.

“The economy has now contracted for two consecutive quarters on a per capita basis — creating a so-called per capita recession — but a technical recession remains unlikely,” said former Reserve Bank economist Callam Pickering.

“Australia’s population is growing rapidly, supporting overall economic activity.”

Households finding it harder to save

Households have been using whatever finances they have to cope with rising interest rates and inflation.

The ABS data show the household saving ratio has fallen for the seventh consecutive quarter to 3.2 per cent, down from 3.6 per cent in the March quarter.

It’s the lowest level since June 2008, during the global financial crisis.


ABS officials say the fall in the rate of household saving has been driven by higher interest payments on dwellings (due to the Reserve Bank’s interest rate increases), higher income taxes, and greater spending by households to meet cost of living pressures.

“Today’s National Accounts data confirms what the RBA said in yesterday’s cash rate decision and what most households and businesses around Australia have already been feeling,” said Brendan Rynne, KPMG chief economist.

“Economic activity is flat and growth has largely stalled,” he said.

Australians are still noticeably pulling back on discretionary spending, but they’re having to spend more on essential goods and services due to rising rents, insurance premiums, and higher electricity and gas bills.

In the June quarter, discretionary spending fell by 0.5 per cent, the third consecutive quarterly fall.

The decline was led by recreation and culture (-2.5 per cent), and furnishings and household equipment (-2.5 per cent).

Partly offsetting that weakness was the purchase of vehicles (+5.8 per cent), with vehicles being delivered to households this quarter after quarantine delays at ports.

Sales down significantly as cost of living bites

Chris de Lorenzo is the owner of a 36-year-old family-owned business, De Lorenzo hair cosmetics, which distributes to about 2,000 hair salons across the country and exports overseas.

He said sales were down about 10 per cent over the past year as the cost of materials and packaging had increased.

“There has been some caution by our clients to purchase like they used to,” he told the ABC.

He said people’s spending habits at salons shifted during the COVID-19 lockdowns, and the higher cost of living in the aftermath of the lockdowns helped to cement those new habits in place.

“People learned to go to their salons less often … and then some people continued that habit,” he said.

“Overall, the average spend is less per client.”

Mr de Lorenzo said the change in spending habits was happening while many salons were also shutting their doors.

“Even though there is growth in the Australian hairdressing market, there are other issues there, like the skills shortages of hairdressers at the moment,” he said.

“A hairdresser might have customers but if they can’t fulfil them due to staff shortages that’s a problem.

“At the end of the day, if the sales are dropping and prices increasing, we are a production facility. Unfortunately, we have to pass those increases on.”

Mr de Lorenzo said the company recently gave staff wage rises, but if there was a further contraction in the economy, it would have to make tough decisions.

“If a recession does occur, we will have a real problem,” he said.

“If … the pinch gets any harder, we may have to take some drastic measures — purchase less, make less and keep our costs down,” he said.

Economy is slowing as Reserve Bank anticipated

Brody Viney, a senior economist with NAB, said with household consumption being “broadly flat,” up only 0.1 per cent in the quarter, it’s indicative of the impact that higher interest rates and inflation were having on the economy.

“We also have to remember with the slowing in the economy, it’s from a high starting point,” he told the ABC.

“So growth was strong through 2022, so from a high starting point it’s natural to get slowing, and then on top of that the RBA is looking for that slowing in demand to show those rate rises that they put through are working to bring a better balance between supply and demand in the economy.

“I think broadly these numbers would suggest, and certainly with that soft or broadly flat consumption number for the quarter, that would confirm the rate rises are having the impact the RBA is looking for,” he said.

Treasurer Jim Chalmers said the economy remained “steady and sturdy” in the face of unrelenting pressure, but he expected it to keep slowing from here, and for unemployment to pick up.

“Economic growth held up well despite the inevitable toll of higher interest rates, moderating inflation and continuing global uncertainty particularly as it relates to China,” he said on Wednesday.

“Australians continue to pull back on discretionary spending to make room for essentials and also to cover mortgage repayments.

“We expect the economy to slow considerably over the next year and we expect the unemployment rate to tick up as well.”

The unemployment rate has been hovering within a range of 3.4 per cent to 3.7 per cent for the last 12 months, and it’s currently sitting at 3.7 per cent.

The Reserve Bank expects it to reach 4.4 per cent by the end of next year.

Cherelle Murphy, EY chief economist, says it’s clear the economy is in a transition phase after the collision of extreme events over the past few years.

“What is obvious from today’s National Accounts is an economy that is slowly finding its equilibrium again,” she said.

By business reporters Gareth Hutchens and Nassim Khadem (Original ABC Article)