GDP growth slightly below RBA’s forecast

Australian gross domestic product (GDP) rose by 0.2 per cent during the December quarter (seasonally adjusted, chain volume measure) according to the latest Australian National Accounts data released by the Australian Bureau of Statistics (ABS).

Annually, Australian GDP rose by 1.5 per cent since December 2022.

The rise of 0.2 per cent was slightly below the Reserve Bank of Australia’s (RBA) forecast of 0.3 per cent. This quarter’s growth was primarily driven by government spending and private business investment, according to the ABS.

The ABS further revealed that the household saving-to-income ratio rose to 3.2 per cent from 1.9 per cent following eight consecutive quarters of declines, with income received by households now outpacing income paid.

ABS head of national accounts, Katherine Keenan, said while growth was steady in December, it slowed across each quarter in 2023.

Commenting on household saving ratios, Keenan said: “Compensation of employees and government payments were the drivers of the increase in income received by households in December.

“Government payments were raised with increases to the base rates of payments across a variety of benefits such as JobSeeker and Youth Allowance; an increase in Commonwealth Rent Assistance; and the standard indexation of benefits that occurs in late September.”

Westpac senior economist Matthew Hassan said the economy is expected to see continued weakness in near term with “a policy ‘pivot’ providing more support from the middle of the year”.

“An improving inflation situation should allow the RBA to begin moving interest rates lower from September,” Hassan said.

On the fiscal side, the stage 3 tax cuts will come in from July and other support measures are likely to be announced with the May budget. The more general easing in cost-of-living pressures will also improve conditions for households.”

Commonwealth Bank of Australia (CBA) head of Australian economics, Gareth Aird, said economic growth will “remain below trend” over the incoming quarters, with the unemployment rate continuing to lift.

“This will in turn alleviate wages pressures and see disinflation continue,” Aird said.

Aird added that the major bank remains content in its call for an easing cycle to begin in 3Q24, beginning in September this year.

“We expect a string of rate cuts once the RBA eases policy to prevent the unemployment rate from rising to around 5 per cent,” Aird stated.

“We have 75 basis points (bps) of easing in our profile by end-2024 and a further 75 bps of cuts in 1H25 that would take the cash rate to 2.85 per cent (a level we assess to be roughly neutral).”

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