Australia's economy grew 0.5pc in December 2022 quarter, ABS data reveal, well below most economists' forecasts
Australia's economy grew 0.5 per cent in the final three months of 2022, according to the Bureau of Statistics' National Accounts figures.
This was well below most economists' forecasts, although annual growth of 2.7 per cent was in line with analyst expectations.
While household spending continued to rise at the end of last year, the growth rate has started to slow in the face of rising interest rates and high inflation.
"After four quarters of strong growth following the Delta-variant lockdowns, growth in household spending softened in the December quarter," the bureau's head of national accounts, Katherine Keenan, said.
"Spending on discretionary services drove the rise in household consumption, however growth markedly slowed in comparison to the September quarter."
The national accounts data show spending on food, eating out and accommodation and domestic travel all continued to rise strongly in the run-up to Christmas.
Jon Watson, who owns the Pavilion Cafe in the south-west Victorian coastal town of Warrnambool, has been a beneficiary.
"We had a fabulous lead into summer," he told The Business.
"Dine-in patronage has been fantastic, numbers are up, but, I think more so, people's spending has been up."
In order to fund that modest increase in spending, the household savings rate dropped for the fifth-consecutive quarter, from 7.1 to 4.5 per cent.
"The household saving ratio continued to decline in the December quarter, to the lowest level since September 2017," Ms Keenan observed.
"The fall was driven by increased interest payable on dwellings, income tax payable and increased spending."
Having run a restaurant in inner-city Melbourne during the global financial crisis, Mr Watson is familiar with what happens during economic downturns — and he thinks one is on the way.
"I think the writing's on the wall; people are probably starting to run out of that discretionary money," he said.
A prominent economist now puts the risk of recession at 50 per cent, as households face the prospect of making substantial spending cuts.
"We'll see that people will still come out for lunch, but their spend per head will change."
While many categories of retail spending fell, such as recreation and culture, clothing and footwear, and furnishings and household equipment, Sydney retailer Minty Lifestyle enjoyed strong sales at the end of last year.
"This Christmas was our biggest Christmas spend ever," owner Susan Chan told The Business.
Although joking that she has "one of the biggest mortgages in Sydney", Ms Chan is very conscious of the effect interest rate rises are having.
"It's very scary. I don't even want to think about it at the moment … but I am still optimistic," she added.
A fall in business investment cancelled out the modest rise in household consumption, and changes in inventories subtracted half a percentage point from GDP.
"The economy hit a soft spot at the end of 2022," Westpac economist Andrew Hanlan noted.
"Domestic demand stalled in the December quarter, the weakest result outside of a lockdown period since June 2014."
A slump in imports was the main thing keeping Australia's economy from contraction, adding 0.9 of a percentage point to growth that only totalled 0.5 per cent in the quarter.
Exports of goods and services rose 1.1 per cent, while imports plunged 4.3 per cent, with the two combined adding 1.1 percentage points to the quarterly GDP figure, which only rose 0.5 per cent.
Economists are suddenly beset with doubts about the relationship between jobs, wages and inflation, which is terrible timing for Australia, writes business editor Ian Verrender.
"Services exports rose 9.8 per cent, reflecting the sustained recovery in education and personal travel as international students and tourists continued to return to Australia," the Australian Bureau of Statistics (ABS) noted in its report.
"Imports of goods (-3.8 per cent) drove the fall and was broad-based across consumption, capital and intermediate goods, aligned with weaker domestic demand.
"Imports of services (-6.5 per cent) also contributed to the fall as Australian travellers favoured cheaper, short-haul destinations. This follows recent strength since the reopening of international borders."
Indeed's Asia-Pacific economist Callam Pickering said this does not bode well for the economic outlook in 2023.
"Australia's economy grew in the December quarter but it wasn't the type of growth that should give people much confidence for the year ahead," he warned.
"Although spending less on imports technically adds to Australian real GDP — since less money is leaving the country — it is typically a sign of economic weakness.
"The 4.3 per cent fall in imports during the December quarter was the largest non-pandemic decline since the global financial crisis. It's a sign that high prices are impacting household- and business-spending patterns.
"While some forward-looking measures of economic performance continue to perform well, the overall picture shows an economy that is slowing down.
"A significant economic downturn is increasingly possible, although a near-term spike in the unemployment rate seems unlikely."
The National Accounts also showed the economy was completely stagnant, excluding the effect of rapid population growth as international migration ramped up, with GDP per capita not moving in the last three months of 2022 after only gaining 0.1 per cent the quarter before.
Speaking to the media, Treasurer Jim Chalmers said that figure, in particular, showed that many households are struggling with inflation, at 7.8 per cent last year, and a 23 per cent jump in mortgage interest payments in the December quarter alone.
"People are already feeling this pain in our economy," he acknowledged.
"You don't have to walk down the far down the main street of any of our suburbs or towns to find people doing it tough.
"What we're seeing today is the numerical representation of the pressure that people are feeling."
Shadow Treasurer Angus Taylor argued the government was contributing to that cost of living pressure.
"We have seen an increase in tax payments from Australian households of over 7 per cent in the last quarter," he said.
"The combined impact of rising inflation, rising interest rates and rising taxation is a real battle for so many Australian households."
One area of good news from the separate monthly Consumer Price Index figures released on Wednesday by the ABS is that inflation looks like it might have peaked at the end of last year.
The relatively new data showed the first monthly decline in prices since February 2021, with a modest 0.1 per cent fall in January.
Prosperous households are inadvertently pushing inflation higher and low-income households are paying the biggest price.
Annual price rises fell from 8.4 per cent in the year to December to 7.4 per cent in the year to January, although this was still the second-highest inflation rate in the five-year history of the monthly index.
The biggest contributors to inflation over the past year were housing (+9.8 per cent, due to both construction costs and rents), food and non-alcoholic beverages (+8.2 per cent) and recreation and culture (+10.2 per cent).
However, all three of those categories had fallen from the levels of annual inflation recorded in December.
However, with the national accounts measure of inflation over the December quarter rising at its fastest pace since 1990, EY chief economist Cherelle Murphy believes the Reserve Bank will still increase interest rates further.
"Even though the domestic economy slowed down in the December quarter, price and wage growth didn't," she noted.
"The Reserve Bank needs that slower growth to translate into disinflation and, until it does, rate hikes and the threat of more won't stop."
Most economists are still forecasting the RBA cash rate to rise at least twice more, and possibly three times, to a peak of between 3.85-4.1 per cent.
We acknowledge Aboriginal and Torres Strait Islander peoples as the First Australians and Traditional Custodians of the lands where we live, learn, and work.
This service may include material from Agence France-Presse (AFP), APTN, Reuters, AAP, CNN and the BBC World Service which is copyright and cannot be reproduced.
AEST = Australian Eastern Standard Time which is 10 hours ahead of GMT (Greenwich Mean Time)