Australia’s economy held firm in the June quarter as a yawning trade surplus propelled growth even as companies began to cut back on demand and householders drew on savings to keep spending.
National accounts data released by the Australian Bureau of Statistics on Wednesday showed gross domestic product expanded 0.9% for the quarter and 3.6% compared with a year earlier.
Economists had predicted about 1% quarterly pace and about 3.5% annual growth. In the March quarter, GDP expanded 0.8% and 3.3% on a quarterly and yearly basis, respectively.
The main contributors in the April-June were net exports, which added 1.1 percentage points to GDP growth while household spending held up, contributing 1.1 percentage points. But a drop in the inventories held by firms lopped 1.2 percentage points off the growth.
“Today’s national accounts reflect an economy which is rebounding from the disruptions of the pandemic, but it’s still being held back by capacity constraints, skills shortages and declining real wages,” Treasurer Jim Chalmers told a media conference. “This is an economy which is growing, but the challenges are growing as well.”
The GDP figures offered a snapshot of the strength on the economy inherited by the Albanese government.
Data released this week showed the booming export sector added about 1 percentage point of growth for the quarter, a contribution nullified by a weaker-than-expected build up of stock by businesses.
The economy is faces increasing headwinds after five interest rate rises in a row by the Reserve Bank, including Tuesday’s half-percentage point rise – which will start to chill domestic demand.
And record relative prices for export prices compared with those for imports may be hard to maintain in future quarters too. China’s economy, easily Australia’s biggest export market, has continued to falter amid Covid clampdowns, and most other trading partners are facing their own higher interest rates and slowing growth.
Key to shoring up growth in the June quarter were households willing to cut savings to keep up with rising costs of everything from petrol to food. The saving to income ratio fell for a third consecutive quarter, from 11.1% to 8.7%, as the increase in household spending outpaced growth in household income, the ABS said.
Australia's household saving ratio is sink back towards pre-pandemic levels. (Source: ABS) pic.twitter.com/Lo6OFKMni2
— Peter Hannam (@p_hannam) September 7, 2022
“Households were continuing to save but at a declining rate over the past three-quarters,” the head of national accounts at the ABS, Sean Crick, said. “While the 8.7% household saving ratio was the lowest since the start of the Covid-19 pandemic, it remains above pre-pandemic levels.”
As an indication of the strength of price rise, the price deflator used to adjust for inflation rose 3.3% for the quarter and was up 6.9% compared with a year earlier. That annual rate was the fastest since 1988-89 “and was broad-based across the domestic economy and international trade”, the ABS said.
The rising commodity prices, driven in part by Russia’s war on Ukraine sending global energy prices soaring, boosted Australia’s export prices 8.8% in the quarter, well ahead of the 3.9% increase in import prices.
“Exports recorded the strongest quarterly rise since the Sydney Olympics boosted travel exports in September quarter 2000,” Crick said.
Goods exports rose 4.2%, with the main contributors being mineral ores, other mineral fuels and rural goods. Services exports rose 13.7%, driven by travel and transportation services, as international borders were open for the full quarter.
Unions, meanwhile, have highlighted that workers’ share of GDP in terms of wages were at a record low 44.1% while profits rose to a record high. Labour productivity growth, quickened to 2.1%, or the fastest in a decade, the ACTU said in a statement.
“If we want to stop living standards going backwards in this country, then we need to give power back to workers and reform the bargaining system,” said ACTU secretary, Sally McManus.
Profits as a share of total factor income smash the previous record high pic.twitter.com/5YvgdqXo0K
— Greg Jericho (@GrogsGamut) September 7, 2022
“Women continue to be paid substantially less than men and industries dominated by women remain undervalued and underpaid,” she said. “To get gender equity, women need the power to bargain, and multi-employer bargaining is how it’s done.”
Economists, though, also pointed out that business activity – outside mining – was among the disappointing elements. Building construction, for instance, fell 5%.
“The latest capital expenditure survey suggests spending will lift in the current financial year and the continuation of the Instant Asset Tax Write-off will help drive this,” Sarah Hunter, a KPMG senior economist, said.
“Overall, momentum is set to ease from now on, as the headwinds that have built up over the last six months flow into actual spending,” Hunter said.
Among the states, NSW led the way with final demand growing 1.9%, with Victoria and Queensland expanding 1%. Resource-rich WA managed only 0.1% growth while the Northern Territory’s demand fell 0.5%.
