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Australian economy grows but the signs of a substantial slowdown are imminent

 

Whilst the March 2023 quarterly economic indicators such as the Consumer Price Index (CPI) continue to rise, economists are expecting an increased slowdown during the soon to be released June quarter CPI data on July 26th, 2023.

In the lead up to this important set of economic data, the week of July 10th to 17th will provide sets of data that could provide indicative trends, with the releases of Building Activity, Weekly Payroll Jobs and Wages, and Overseas Arrivals and Departures in Australia being published.

In summary of the March quarterly CPI data released on April 26th, 2023, the Australian Bureau of Statistics (ABS) reported that the CPI indicator rose 7.0 percent in the year to March 2023, and rose 1.4 percent in the quarter to March 2023. Significantly, this was the lowest quarterly rise since December 2021. The March results show that the resilient economy is starting to see the impact of the cash rate rises that began in May 2022.

Importantly, we learned twelve things about the Australian economy during the March quarter:

  1. Our economy grew 0.2 percent during the March quarter 2023 - And 2.3 percent compared to the same time last year. This was the sixth straight quarter of economic growth, though it was the weakest quarterly growth since the COVID-19 Delta lockdowns in September quarter 2021.
  2. The labour market remained tight - The unemployment rate for the month of March was 3.5 percent, a near 50-year low. More than 31,000 people found employment in that month.
  3. We downed tools over the summer - Around 43 percent of employees worked fewer hours than usual during January because they were on leave.
  4. High inflation continued - The consumer price index rose 1.4 percent during the March quarter of 2023 and 7.0 percent compared to last year. The main drivers of the quarterly consumer price increase were medical and hospital services, gas, holiday travel, and accommodation.
  5. Inflation curbed our enthusiasm for shopping - Spending on discretionary items fell 1.0 percent. Looking past the pandemic, this was the first fall in discretionary spending since September quarter 2019. Purchases of furniture and household equipment fell 2.4 percent. Total household consumption grew a modest 0.2 percent, the slowest quarterly growth since the Delta lockdowns. Retail sales fell 0.6 percent during the March quarter of 2023.
  6. We saved less - Even though we held back on discretionary spending, households only saved 3.7 percent of their income during the March quarter of 2023. This was the lowest proportion of household income being saved since the June quarter of 2008. Interest paid on mortgages grew a further 11.5 percent during the quarter. The amount of money spent servicing mortgages more than doubled in the past year.
  7. Our pay packets continued to grow - In response to tight labour market conditions, though real wages continued to fall due to cost of living pressures. The wage price index rose 3.7 percent compared to last year, the highest annual rise in more than a decade. Compensation of employees rose 2.4 percent during the quarter.
  8. Taxes rose -Income taxes paid by individuals rose 3.3 percent due to the strong labour market, while company tax rose 4.6 percent. GST collection rose a modest 0.7 percent as shoppers tightened their belts.
  9. Fewer new houses were built - Construction of new dwellings fell by 1.3 percent. Bottlenecks in labour and materials supplies began to ease though remained tight. Builders tackled a significant backlog of work still to be done. The average time taken to build a house rose to about nine months, up from about six months before the pandemic.
  10. Trade weighed on economic growth - Cars and mobile phone handsets drove our imports bill. Travel imports rose 7.1 percent as more of us visited overseas destinations close to home. Exports of meat grew 36.9 percent due to improved supply conditions, while travel exports rose 17.5 percent as international students continued to return to our universities.
  11. Business investment was strong - Purchases of equipment, such as heavy vehicles and cotton-picking machinery, grew 6.0 percent. Spending on infrastructure increased by 3.1 percent, driven by electricity and transport projects. The switch to renewable sources of energy continued, with a number of wind, solar, and battery projects underway. Several large data centre and office projects also started.
  12. Bank margins narrowed - Financial corporations’ profits fell 0.2 percent as competition for deposits increased.

Whilst we await the release of key sets of economic data, the recent good news for most was the RBA’s holding of the cash rate on July 4th, with reported inflation in June at 5.6%, down from 6.8% in May. That figure is considerably below the peak of 8.4% in December 2022, with the hope that more encouraging news on the slowdown will lead to more certainty and confidence, with a further holding of interest rates for the homeowners of 6 million odd Australian properties that have mortgages on them.