Australian Economy Shows Modest Growth, Fails to Meet Expectations

In the September quarter, the Australian economy expanded by 0.3 percent, showing a slight improvement from the 0.2 percent growth observed in the previous three months.

However, this quarterly growth fell short of the expected 0.5 percent increase, according to the most recent data released by the Australian Bureau of Statistics (ABS) on Dec. 4.

On an annual basis, the economy grew by 0.8 percent, down from the 1 percent growth seen in June and below the expected 1.1 percent growth.

According to Katherine Keenan, ABS head of national accounts, “The Australian economy has experienced growth for the twelfth consecutive quarter, although it has been slowing since September 2023.”

The strength of the quarter was largely driven by public sector spending, with both government consumption and public investment making positive contributions to growth.

Despite this, the data also indicated a concerning trend: GDP per capita declined by 0.3 percent, marking a decrease for the seventh straight quarter. Nevertheless, public investment rose by 6.3 percent in the September quarter.

Rising Government Spending Despite IMF Warning

Government spending increased by 1.4 percent.

“This quarter, social benefits paid to households increased as households received energy cost relief rebates, including the Energy Bill Relief Fund,” Keenan mentioned.

However, she highlighted that compared to previous quarters, growth in social benefits at the Commonwealth level was lower, particularly affecting programs like the National Disability Insurance Scheme (NDIS) and Aged Care.

Despite the International Monetary Fund (IMF) advising the Australian government to adopt a stricter fiscal policy to combat inflation, spending has continued to rise.

While acknowledging that temporary cost-of-living support programs can lower prices, the IMF cautioned in an October report that such measures could stimulate broader economic activity.

The IMF also noted that state and territory budgets have been more expansive than expected, with further support for cost-of-living and infrastructure contributing to overall fiscal stimulus.

Public Sector Investment on the Rise

General government investment increased by 6 percent, driven by defence equipment imports and investments in hospitals and roads.

Simultaneously, investment by state and local public corporations rose by 8.8 percent, fueled by investments in roads and renewable energy.

“The growth in public investment in the September quarter followed three consecutive quarters of decline. The level of investment this quarter was the highest on record, surpassing the previous record set in September 2023,” Keenan stated.

Flat Household Spending

Household spending remained stagnant in the September quarter, following a 0.3 percent decline in June.

The main negative impact on growth came from a decrease in electricity and gas spending, attributed to the introduction of energy bill relief rebates. These rebates are classified as government spending rather than household spending in the national accounts.

“The decline in household electricity spending driven by rebates was offset by growth in other categories. Clothing and footwear increased due to unseasonably warm weather, while essential spending moderately grew with continued increases in rent, health, and education services,” Keenan explained.

Spending by Australian travelers abroad also contributed to growth, especially in tourism-related sectors like hotels, cafes, and restaurants, as well as recreation and culture.

Boost in Household Savings and Income

Positively, the household saving ratio rose to 3.2 percent in the September quarter. This was accompanied by a 1.5 percent increase in disposable income, outpacing the modest 0.6 percent increase in household spending.

Keenan highlighted that the growth in disposable income was partially due to a 1.3 percent rise in employee compensation and a 3.6 percent increase in interest received.

“The introduction of stage 3 tax cuts led to a 3.8 percent reduction in income tax paid by households in the September quarter. This contributed to the rise in household gross disposable income,” Keenan added.

Opposition’s Criticism

The Opposition has consistently criticized the government’s economic management, especially its failure to provide sufficient relief to Australians facing ongoing cost-of-living challenges.

Last week, Shadow Treasurer Angus Taylor released a statement condemning the Albanese government for its ineffective approach to managing inflation.

“Australia lags behind other major advanced economies in combating inflation, with core inflation reaching 3.5 percent. It surpasses core inflation rates in all other major economies,” Taylor noted.

Taylor vowed that a Coalition government would restore economic stability through a “back-to-basics economic agenda.”

Treasurer Defends Government Record

Contrarily, Treasurer Jim Chalmers defended the government’s performance, highlighting significant progress since the Labor government assumed office in July 2022.

“Inflation has significantly decreased. Real wages are increasing again. The economy is still expanding,” he stated in a release.

Chalmers attributed many of the country’s economic challenges to global factors such as the financial crisis, pandemic, and global inflationary pressures exacerbated by ongoing conflicts in Europe and the Middle East.

“We acknowledge that the mission is not yet accomplished—it is still ongoing, but we remain optimistic,” Chalmers concluded.