Australia: GDP records slowest increase since Q3 2022 in Q4
GDP growth ebbed to 0.2% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter, from 0.3% in the third quarter. Q4’s reading marked the worst since Q3 2022. On an annual basis, economic growth moderated to 1.5% in Q4, compared to the previous quarter’s 2.1% growth. Q4’s annual outturn was the worst since Q4 2020.
Private consumption increased 0.1% in the fourth quarter, which contrasted the third quarter’s 0.2% contraction, as households increased their spending on essential items such as electricity, rent, food and health but cut discretionary spending. Overall, the modest uptick in spending and a robust expansion in employees’ compensation translated into a rising savings ratio. Less positively, government consumption growth eased to 0.6% in Q4 (Q3: +1.5% s.a. qoq) due to a contraction in defense spending. Moreover, fixed investment contracted 0.2% in Q4, marking the worst reading since Q4 2022 (Q3: +1.6% s.a. qoq), saddled by falling investment in new machinery and equipment. Lastly, destocking subtracted 0.3 percentage points from growth; mining inventories shrank amid strong international demand for commodities.
On the external front, exports of goods and services contracted 0.3% in Q4, weighed down by declining shipments of non-monetary gold and rural goods, marking the worst result since Q1 2022 (Q3: -0.2% s.a. qoq). In addition, imports of goods and services deteriorated, contracting 3.4% in Q4 (Q3: +2.3% s.a. qoq), marking the worst reading since Q4 2022. Overall, net trade contributed 0.6 percentage points to GDP growth in the fourth quarter.
Moving to the current quarter, improved PMI readings, consumer sentiment in January-February and business sentiment in January point to an uptick in GDP growth. In 2024 as a whole, the economy should lose traction from last year as falling, albeit sticky, inflation and high interest rates constrain activity. However, healthy population growth, recovering tourism and solid global commodity demand will buttress overall growth. The performance of China’s economy—a key market for Australian exports—is a factor to monitor.
Commenting on the outlook, United Overseas Bank’s Lee Sue Ann stated:
“Ongoing softness in the Australian economy is likely to persist in the first half of 2024, driven by subdued growth in household consumption as cost-of-living pressures, higher interest rates and higher tax payable all continue to weigh on disposable incomes. Growth is then likely to pick up gradually in the second half of 2024 as the effects of high inflation ease. The impact of earlier increases in the cash rate on GDP growth will also start to fade.”