Australia’s economy is growing at an annual rate of 1.8% after a strong pick-up in economic activity in the June quarter.
Gross domestic product (GDP) grew by 0.8% in the June quarter, in seasonally adjusted terms – more than double the 0.3% rise in the March quarter – driven by strong growth in exports and household consumption.
The treasurer, Scott Morrison, said the pick-up in growth was consistent with economic developments in the United States and United Kingdom, and showed the economy was moving towards “balanced growth”, despite the impact of Tropical Cyclone Debbie earlier this year.
He said Australia’s economy was proving resilient, and he looked forward to stronger growth in coming months.
“The better days ahead for the Australian economy are now beginning to emerge,” he said.
“Today’s national accounts for the June quarter reveal solid and more balanced growth for our economy, confirming the emerging national economic consensus of the better days ahead that I referred to in this year’s budget.”
He said household consumption, new business investment, net exports, and new public final demand, were all driving growth, offsetting declines in inventories and flat dwelling investment.
He said the government’s defence spending was also making a huge contribution to growth, with defence investment up 26.3% in the quarter.
But household consumption was the largest contributor to growth in the year, up by 0.7% in the quarter, and 2.6% over the last 12 months. Food, rent, financial services and furnishing and household items were the major growth items.
Morrison admitted households were maintaining their spending levels by saving much less than they were a few years ago, with the household saving ratio declining to 4.6% in the June quarter (a nine-year low), down from 8% in 2015 and over 10% in 2012.
When asked if he thought current household spending levels were sustainable, given record-low wages growth and rising prices were encouraging people to save less, Morrison said the fall in the saving ratio wasn’t necessarily a bad thing.
“I think it’s a statement of confidence,” he said. “The saving ratio has come down, but it remains positive. That’s an indicator that people are still putting a bit away, just not as much as they were putting away before. That often is an indicator of improving confidence in households.”
Economists say the GDP data definitely shows positive signs, and fit with the Reserve Bank’s upbeat view on the economic outlook.
Alan Oster, NAB’s chief economist, said it was likelier the RBA would raise interest rates “sooner than we currently expect in 2019”.
The GDP figures come a day after the Reserve Bank kept the official cash rate on hold again, at a record-low 1.5%.
Philip Lowe, the RBA governor, told the Reserve Bank board dinner on Tuesday that economic growth would reach 3% over the next couple of years, and the unemployment rate would keep declining.
“Encouragingly, growth in the number of Australians with jobs has picked up over recent months and the unemployment rate has come down a bit,” Lowe said.
“The investment outlook has also brightened. Inflation has troughed and it is likely to increase gradually over the next couple of years. These are positive developments.”
But some economists have cautioned that the 0.8% growth in the June quarter may overstate the health of the economy, because it followed an unusually weak 0.3% in the first quarter.
Paul Dales from Capital Economics said the rebound in growth in the June quarter was due to the unwinding of the drag in the first quarter caused by the unusually hot and wet weather that disrupted activity.
“The 0.6% quarter-on-quarter average of the [March and June quarters] provides a better guide to the true trend and suggests the economy is growing at a subdued rate of about 2.2% per year,” Dales said.
“We suspect growth will improve to only 2.5% next year, which suggests the Reserve Bank’s 3% forecast is too optimistic.”
Shadow treasurer Chris Bowen has criticised Morrison’s positive spin on the data, saying average wages fell 0.1% in the June quarter and living standards slipped significantly.
He said annual economic growth is still below 2%, and since it has been below 2% for three of the last four quarters, “this is now the worst run economic growth performance since the global financial crisis”.
“[And] the Bureau of Statistics notes that for the last five quarters, households have been spending more than their incomes,” he said.
‘This is in line with the RBA governor’s concerns around household debt and the risks this poses to future economic growth.”
