SYDNEY (Reuters) -Australia’s economy grew at a snail’s pace in the December quarter as a punishing squeeze on household incomes brought consumer spending to a standstill, confirmation that high interest rates were working all too well to curb demand.
Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product (GDP) rose 0.2% in the fourth quarter, under forecasts of 0.3%. That compared with a upwardly revised 0.3% expansion in the prior quarter.
Annual growth slowed to 1.5%, down from 2.1% the previous quarter and the lowest since early 2021, when the economy was emerging from a pandemic-driven recession.
In a telling sign of the softness in domestic demand, household spending did not add to economic growth at all in the fourth quarter, as a 0.7% rise in spending on essentials was offset by a 0.9% fall in discretionary spending.
“Households upped their spending on essential items like electricity, rent, food and health,” said Katherine Keenan, ABS head of national accounts.
“Meanwhile they wound back spending in discretionary areas including hotels, cafes and restaurants, cigarettes and tobacco, new vehicle purchases and clothing and footwear.”
Moreover, GDP per capita fell 0.3% in the fourth quarter, shrinking for three straight quarters in the longest declining streak since 1982.
While the household saving ratio did rebound 3.2%, it was still subdued after a rise of 1.9% in the previous quarter.
For the December quarter, net trade was a big driver of growth, with a pull-back in imports – thanks to more Australians spending less money overseas – adding 0.7 percentage points to GDP growth.
The economic slowdown has followed aggressive monetary tightening by the Reserve Bank of Australia as policymaker look to bring inflation back to its 2-3% target range. The central bank had expected the economy to slow to an annual 1.5% by the end of the last year and 1.3% by mid 2024.
The RBA last month kept interest rates steady at 4.35%, having raised them by 425 basis points since May last year. Consumer inflation held at a two year low of 3.4% in January, adding to signs that rates wouldn’t go any higher.
Markets are confident that the tightening cycle is over, although future pricing show that any rate relief won’t come until around August.
(Reporting by Stella Qiu and Wayne Cole; Editing by Tom Hogue and Shri Navaratnam)
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