Australian Economy Grows Slightly, Falls Short of Expectations

An Australian 100 dollar note is shown on Oct. 6, 2009. Greg Wood/AFP via Getty Images

The Australian economy expanded by 0.3 percent in the September quarter, marking a slight improvement over the 0.2 percent growth seen in the previous three months.

However, the quarterly growth missed the anticipated 0.5 percent increase, according to the latest data from the Australian Bureau of Statistics (ABS), released on Dec. 4.

On an annual basis, the economy grew by 0.8 percent, down from 1 percent in June and below the expected 1.1 percent growth.

“The Australian economy grew for the twelfth quarter in a row, but has continued to slow since September 2023,” said Katherine Keenan, ABS head of national accounts.

The quarter’s strength was largely driven by public sector expenditure, with both government consumption and public investment contributing positively to growth.

However, the data also highlighted a concerning trend: GDP per capita fell by 0.3 percent, marking a decline for the seventh consecutive quarter. Public investment, however, rose 6.3 percent during the September quarter.

Rising Government Spending Despite IMF Warning

Government spending increased by 1.4 percent.

“Social benefits paid to households increased this quarter as households received energy cost relief rebates, including the Energy Bill Relief Fund,” Keenan noted.

However, she pointed out that, compared to recent quarters, growth in social benefits at the Commonwealth level was lower, particularly for programs like the National Disability Insurance Scheme (NDIS) and Aged Care.

The rise in spending has increased despite advice from the International Monetary Fund (IMF), which recommended the Australian government adopt a more restrictive fiscal policy to tackle inflation.

While acknowledging that cost-of-living support can temporarily lower prices, the IMF warned in an October report that such measures could stimulate broader economic activity.

The IMF also pointed out that state and territory budgets have been more expansionary than anticipated, with further cost-of-living support and infrastructure spending contributing to the overall fiscal stimulus.

Public Sector Investment on the Rise

General government investment rose by 6 percent, driven by defence equipment imports and investments in hospitals and roads.

At the same time, investment by state and local public corporations increased by 8.8 percent, fueled by investments in roads and renewable energy.

“The rise in public investment in the September quarter followed three consecutive quarterly falls. The level of investment this quarter was the largest on record, the previous record was in September 2023,” Keenan said.

Flat Household Spending

Household spending remained flat during the September quarter, following a 0.3 percent fall in June.

The largest negative impact on growth came from a decline in electricity and gas spending, attributed to the introduction of energy bill relief rebates. These rebates are counted as government spending rather than household spending in the national accounts.

“The rebate-driven fall in household electricity spending was offset by growth in other categories. Clothing and footwear rose in response to unseasonably warm weather, and essential spending grew moderately with continued growth in rent, health, and education services,” Keenan said.

Spending by Australian travellers overseas also contributed to growth, particularly in tourism-related sectors such as hotels, cafes, and restaurants, as well as recreation and culture.

Boost in Household Savings and Income

On a more positive note, the household saving ratio rose to 3.2 percent in the September quarter. This was accompanied by a 1.5 percent rise in disposable income, which outpaced the modest 0.6 percent rise in household spending.

Keenan highlighted that the growth in disposable income driven in part due to employee compensation rising by 1.3 percent and interest received increasing by 3.6 percent.

“The introduction of stage 3 tax cuts saw a fall in the amount of income tax paid by households of 3.8 percent in the September quarter. This contributed to a rise in household gross disposable income,” Keenan added.

Opposition’s Criticism

The Opposition has consistently criticised the government’s handling of the economy, particularly its inability to provide sufficient relief to Australians grappling with the ongoing cost-of-living crisis.

Shadow Treasurer Angus Taylor released a statement last week criticising the Albanese government for failing to manage inflation effectively.

“Australia is at the back of the international pack in fighting inflation with core inflation rising to 3.5 percent. Australia’s core inflation is higher than every other major advanced economy.”

Taylor vowed that a Coalition government would restore economic stability with a “back-to-basics economic agenda.”

Treasurer Defends Government Record

In contrast, Treasurer Jim Chalmers defended the government’s performance, pointing to significant progress since the Labor government took office in July 2022.

“Inflation has more than halved. Underlying inflation is falling too. Real wages are growing again. The economy is still expanding,” he said in a statement.

He attributed much of the country’s economic challenges to global factors, including the financial crisis, the pandemic, and global inflationary pressures exacerbated by ongoing conflicts in Europe and the Middle East.

“We’re not pretending it’s mission accomplished—it isn’t. We are realistic about this, but optimistic too,” Chalmers added.