Australian Economy Grows in June Quarter, but More Challenges Await

Pedestrians move through Martin Place in Sydney, Australia, on Aug. 16, 2022. Lisa Maree Williams/Getty Images

The Australian economy rose by 0.9 percent in the June quarter. However, the growth was foreshadowed by challenging economic conditions.

National accounts data from the Australian Bureau of Statistics showed that increased household spending and exports continued to drive economic growth for the third consecutive quarter, taking the GDP growth rate to 3.9 percent for the entire 2021-2022 financial year.

However, Treasurer Jim Chalmers said the data did not give a complete picture of the escalating challenges facing the economy.

“Our economy is growing relatively solidly, but some of the challenges in the economy are growing solidly as well,” he told the parliament.

“In the two months since the end of the June quarter, we’ve seen a deteriorating global growth outlook, continuing labour shortages, and rising interest rates.”

Overall Developments in the June Quarter

During the June quarter, household spending climbed by 2.2 percent due to increased travel after states reopened their borders, which contributed 1.1 percentage points to the GDP.

At the same time, strong commodity exports and lower levels of imports contributed another percentage point to real GDP growth.

Nevertheless, the treasurer expected that the high commodity prices enjoyed by Australian exporters would not remain for long.

Treasurer Jim Chalmers addresses the Jobs and Skills Summit at Parliament House in Canberra, Australia, on Sep. 1, 2022. Martin Ollman/Getty Images

On the downside, there was a drop in building activities, with dwelling and non-dwelling construction tumbling by 2.9 percent and five percent, respectively.

While compensation of employees rose by 2.4 percent in the three months to June–the highest level since 2010, wages still fell behind inflation.

In addition, household saving rates decreased from 11.1 percent to 8.7 percent during the period.

KPMG economist Sarah Hunter said the increase in household spending exceeded the growth in income, causing overall savings to drop.

“While this is still slightly above pre-COVID levels, there is now limited room for growth in household spending to outstrip household income,” she said.

“This shift, plus the drag from rising prices and mortgage rates, will put a significant dampener on momentum in consumer spending over the next six to 12 months.”

The release of national accounts figures came after the Reserve Bank of Australia announced the fifth consecutive official cash rate hike.

BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said Australian households would soon feel the rate hike’s impact.

“Conditions have become more challenging for households since the June quarter, with the RBA having increased interest rates by 225 basis points (2.25 percent) since May,” he said.

“This will contribute to a slowing in growth from here.”

Furthermore, he said Australia’s growth would be affected by the slowing momentum of the global economy in the upcoming quarters.

Government Warned of Limited Relief for Households

Regarding living cost pressures, while Australians can expect some relief from the government, Chalmers warned that there was a limit on what the government could do in the October budget.

“We will provide cost of living relief, but we need to do it in the most responsible way that we can and in a way that delivers a broader economic dividend and doesn’t make it harder for the Reserve Bank,” he told reporters.

Meanwhile, Shadow Treasurer Angus Taylor said the government needed to restrain its spending in the October budget.

“Monetary and fiscal policy need to work together, but Labor is only promising additional budget spending,” he said.

He also said that if the government did not have a plan to tackle economic issues, the reserve bank would have no choice but to push interest rates even higher.