Economy barely growing as higher interest rates bite

Australia’s economy is still growing but only just, supported in part by household spending on travel, concerts and other major events.

The 0.1 per cent of growth over the first three months of the calendar year, came in a little weaker than the 0.2 per cent expected lift.

On an annual basis, gross domestic product as compiled by the Australian Bureau of Statistics (ABS) rose 1.1 per cent, marking the lowest through-the-year growth since 1992, outside the pandemic.

In the December quarter, the economy expanded 0.3 per cent and 1.6 per cent on an annual basis.

ABS head of national accounts Katherine Keenan said growth was “weak” and fell for the fifth consecutive quarter on a per capita basis, down 0.4 per cent in March and 1.3 per cent through the year.

Domestic final demand was subdued over the quarter, growing just 0.2 per cent, with the rise in imports of goods and services offset by a rise in exports and change in inventories.

Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said there were signs of life in household spending, largely concentrated to essentials like health and utilities.

“But discretionary spending also increased in the March quarter due to increased activity around major concerts and sporting events, along with an increase in travel activity,” he said.

The economy has been losing steam as higher interest rates work to dampen demand and weigh on inflation, which has been moderating but remains above the Reserve Bank of Australia’s two-three per cent target band.

A slower economy is an expected consequence of the central bank’s series of interest rate hikes but the goal is to tame inflation without pushing the economy into recession and pushing unemployment up needlessly high.

Mr Langcake said economic momentum was likely at it slowest point and would likely improve in the second half of the year as tax cuts boosted consumer spending.

Treasurer Jim Chalmers said economies around the world were feeling the impact of higher interest rates and high but moderating inflation.

“Over the past year, around three quarters of OECD economies have recorded a negative quarter while Australia has avoided one to date,” he said.


Poppy Johnston
(Australian Associated Press)

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