Latest GDP figures revealed amid mounting uncertainty

According to the Australian Bureau of Statistics’ (ABS) latest national accounts data, Australia’s GDP grew 0.2 per cent over the three months to 31 March 2023, down from 0.6 per cent (revised up) in the December quarter.

The March quarter result fell below market expectations of a 0.3 per cent increase.

In annual terms, GDP grew 2.3 per cent in the 12 months to March 2023, down from 2.8 per cent in the previous quarter and from 3.3 per cent in the previous corresponding period.

GDP per capita also fell, dropping from 0.8 per cent in the 12 months to 31 December 2022 to 0.3 per cent over the year to March 2023.

“This is the sixth straight rise in quarterly GDP but the slowest growth since the COVID-19 Delta lockdowns in September quarter 2021,” Katherine Keenan, ABS head of national accounts, said.

Ms Keenan said the main drivers of the March quarter result were private and public gross fixed capital formation, growing just 1.4 per cent and 3 per cent, respectively.

A weakening in aggregate economic activity has coincided with the Reserve Bank of Australia’s (RBA) aggressive monetary policy tightening cycle.

The release of the March quarter GDP data followed the RBA’s decision to lift the cash rate by a further 25 bps to 4.1 per cent at its June board meeting.

This represented the 12th hike in 13 months and takes the cumulative increase to interest rates since the hiking cycle commenced to 400 bps.

The RBA’s latest statement on monetary policy suggests further hikes may be actioned in the coming months to shore up the central bank’s disinflation strategy.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve,” the central bank noted.

The RBA acknowledged economic growth has slowed and labour market conditions have moderated, but reiterated inflation “remains too high”.

The central bank also expressed concern over a “pickup” in wages and flagged the risks of a wage-price spiral.

The Commonwealth Bank has attributed the RBA’s June hike to the Fair Work Commission’s recent decision to lift the minimum wage by 5.75 per cent, which may have tilted the balance at the central bank’s June board meeting.

Fair Work’s decision followed an extensive review involving consultation with a variety of stakeholders, including state and federal governments, the Australian Chamber of Commerce and Industry, the Australian Council of Trade Unions, and the Australian Industry Group.

The Annual Wage Review aimed to ease cost-of-living pressures for approximately 20.5 per cent of Australian employees paid in accordance with minimum wage rates in modern awards.

“Inflation is reducing the real value of these employees’ incomes and causing households financial stress,” the commission noted.

However, the Fair Work Commission said in determining the extent of the increase, it considered the potential inflationary impact of higher wages, acknowledging concerns about a wage-price spiral.

“We have also had regard to the need to avoid entrenching high-inflation expectations by taking a perceived wage indexation approach, and the recent weak performance in productivity growth,” the commission noted.

In an address on Wednesday (7 June), RBA governor Philip Lowe said the minimum wage increase exceeded the central bank’s forecast.

However, he stressed the Fair Work decision was among a number of factors influencing its tightening bias.

[Related: April inflation data weakens RBA outlook: Economists]