Australia’s latest GDP figures for Q4CY23 are out, showing a growth of 0.2% in the quarter.
This missed ANZ expectations for 0.3% growth for a yearly total of 1.6% in 2023.
In turn, the Australian GDP growth rate in 2023 was 1.5% YoY – a situation that definitely doesn’t scream out for interest rate increases from the RBA.
Barclays Australia’s economic analysis team – Rahul Rahul Bajoria and Shreya Sodhani – see the RBA cutting rates in Q3.
“With inflation expected to ease, we continue to expect rate cuts to start in Q3 24,” the analysts wrote in a note released Wednesday.
“Lower growth outcomes, amid slowing inflation, will add to reasons for the RBA to consider reducing rates when other global central banks are turning accommodative.”
Notably, household spending was subdued at a growth rate of near 0.1% – not far from contractionary territory – while the household savings ratio actually climbed back above 3%.
(And if we only clocked 1.5% last year, how does China expect to hit 5% this year?)
Household savings ratio boost
What a household savings ratio above 3% means for the Australian economy through 2024 depends on whether people continue to save while pulling back on spending, or, pivot back to spending.
In Q3 of 2023, the ratio dropped as low as 1.1%.
The data suggests that millions of households have stopped spending to start saving. That might read like a ‘well, duh’ observation, but here’s my point – this could mean the surprisingly strong Australian consumer who defied gloomy expectations all through 2023 could be set for a prolonged rest in 2024.
Consider that retail sales growth missed expectations of 1.5% in the latest read, clocking in instead at 1.1%.
On the whole, domestic demand growth also turned negative in Q4 of 2023.
Not the kind of thing that screams “the RBA will raise rates again.”
But, meanwhile, there’s the fact core inflation still remains above the RBA’s target band with rents and property a major contributor that, unlike other aspects of the economy, remain outside the government’s ultimate control as far as policy goes.
Australia’s inflation is largely driven by rent, meaning our national disinflation trajectory is largely a supply-side story.
Regardless, Oxford Economics head of macro forecasting Sean Langcake sees Australia as within a “cyclical low point.”
“Policy settings and fast inflation [are curbing economic] growth,” Langcake said on Wednesday.
“Building construction is providing good support to activity … dwelling investment was particularly weak in the quarter, underscoring the pressures around the work to be done in the sector.”
Amazon slowly invading Australia
Private sector business investment represented 0.7% of GDP growth in Q4CY23.
Where it came from is perhaps the most interesting datapoint in today’s release. Construction drove this growth forward not for places to live, but instead as shelter for goods and servers.
Data centres and warehouses were the most dominant item of construction activity in Q4 of last year.
This datapoint carries more weight in a world where we’ve learned Amazon Australia sales have hit $3.1B at home, as more and more households turn to the American giant ever eating away at the space eBay once felt safe.
