Australia: Growth softens in Q4
Economic activity increased 0.5% on a seasonally adjusted quarter-on-quarter basis in Q4, following the previous quarter’s 0.7% expansion. The result came in below market expectations.
Private consumption expanded 0.3% in Q4, following Q3’s 1.0% increase, as real incomes were hit by elevated inflation and tighter financing conditions. Meanwhile, fixed investment dropped 1.4% in Q4, swinging from the 0.1% expansion recorded in the previous quarter. A downturn in private investment was mainly behind the reading, while public investment shrank at a softer pace than in Q3. Meanwhile, government consumption rose 0.6% in Q4 (Q3: +0.2% s.a. qoq).
On the external front, exports of goods and services increased 1.1% in the fourth quarter (Q3: +2.5% s.a. qoq), supported by a recovering tourism sector but weighed down by lower foreign sales of gold and non-rural goods. Meanwhile, imports of goods and services fell 4.3% in Q4 (Q3: +4.0% s.a. qoq). Overall, net trade contributed 1.1 percentage points to the quarter-on-quarter expansion.
Meanwhile, in annual terms, GDP growth decelerated to 2.7% in the fourth quarter from 5.9% in the third quarter.
Commenting on the outlook, Lee Sue Ann, economist at UOB, stated:
“The latest GDP print is in line with our view of growth turning softer as high inflation and interest rates weigh on households alongside a slowdown in global growth. We see Australia’s GDP growth slowing this year to 1.7% from 3.7% in 2022. Key factors to watch will be how households are impacted by higher interest rates, how quickly inflation is able to moderate, and how wage growth ties in with labour market dynamics.”
In the first quarter of this year, available data paints a mixed picture. Business sentiment improved in January, while consumer sentiment remained downbeat in January–February. For the year as a whole, the economy should move into a lower gear. Sustained inflation, higher interest rates and lower savings should weigh on private consumption, which will nonetheless benefit from a tight labor market. Healthy global demand for commodities will support the external sector.