Australia’s economy grew by 0.3 per cent in the September quarter, and 0.8 per cent over the year, according to the Australian Bureau of Statistics (ABS). It means the economy’s annual growth rate has weakened even further from the extremely weak growth recorded in the June quarter.
Some economists were expecting the annual rate of growth to pick up from 1 per cent, but Wednesday’s figures show the economy has continued to slow down since the middle of the year, to an anaemic 0.8 per cent. As recently as three months ago, Treasurer Jim Chalmers was warning that the Reserve Bank’s 13 interest rate rises were “smashing the economy”.
“The weakness in GDP growth adds to the case for looser monetary policy,” Marcel Theiliant of Capital Economics said. “We’re sticking to our view that the Bank will start a short easing cycle in the second quarter of next year,” he said.
Tony Sycamore, IG analyst, said the chances of the Reserve Bank cutting interest rates by 0.25 percentage points in April 2025 had now risen to 80 per cent, according to market participants.
But accompanying the weakness in growth, Wednesday’s figures show living standards picked up noticeably in the September quarter, because the government’s stage 3 tax cuts and energy rebates helped to lift peoples’ disposable income. However, that boost to incomes did not translate into more spending. “On average, households responded by saving more, rather than increasing consumption,” Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, said. “We expect GDP growth will slowly pick up in the coming quarters. The fundamentals for an improvement in consumption growth are favourable. But this improvement will be unspectacular, with the economy set to endure below trend growth in the near term while capacity constraints continue to bite,” he said.
Overall, analysts say today’s weak growth numbers mean there’s now a question mark hanging over the RBA’s forecasts.
The RBA was expecting annual growth to pick up to 1.5 per cent by the end of this year, so annual growth of 0.8 per cent at this stage in the cycle suggests that forecast may be difficult to achieve.
The ABS data show economic activity in the September quarter was heavily reliant on state and federal government spending. After three consecutive quarterly falls, public investment in the quarter was the largest on record.
It comes after RBA governor Michele Bullock last week pushed back against the argument that there was too much government spending in Australia at the moment, saying it was helping to keep the economy on an “even keel.”
She said the private sector was growing “very slowly” currently, and government spending was providing crucial support.
“If it wasn’t there, if it wasn’t filling that gap, then things might well be much worse in terms of the employment market,” Ms Bullock told a Sydney audience.
In that vein, Wednesday’s ABS data show general government investment rose 6 per cent in the September quarter, driven by defence equipment imports and investment in hospitals and roads. In fact, national defence investment increased by a massive 35 per cent.
State and local public corporations investment rose 8.8 per cent due to investment in roads and renewable energy.
EY chief economist Cherelle Murphy said the ABS data clearly showed the public sector was “underwriting the Australian economy.” “Never before have governments pumped so much into the economy via rebates, tax cuts, infrastructure, health and disability support and defence,” she said.
What are the potential consequences of weak consumer spending on the Australian economy?
## Interview: Australia’s Sluggish Economic Growth
**Interviewer:** Joining us today is Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia. Sean, the latest figures from the Australian Bureau of Statistics show that our economy grew by a mere 0.3 per cent in the September quarter, with the annual growth rate slowing to just 0.8 per cent. What’s driving this sluggish performance?
**Sean Langcake:** Thanks for having me. It’s true, the economy is showing signs of weakness. While the September quarter saw a modest increase in GDP, the slowdown from the June quarter is concerning. Consumer spending remains subdued despite government tax cuts and energy rebates bolstering disposable income. Many households are choosing to save more rather than spend, likely due to ongoing concerns about the cost of living and future economic uncertainty. [[1](https://www.abs.gov.au/statistics/economy)]
**Interviewer:** So, people have more money in their pockets, but they’re not spending it. What does that mean for the broader economy?
**Sean Langcake:** It creates a vicious cycle. Weaker consumer spending slows down economic activity across various sectors. We’re seeing this with businesses hesitant to invest and expand due to low demand.
**Interviewer:** Some economists are calling for the Reserve Bank to ease monetary policy, even cut interest rates, to stimulate spending. What’s your take on that?
**Sean Langcake:** It’s certainly a topic of debate. While the current low growth rate does support the case for looser monetary policy, the Reserve Bank also needs to carefully consider inflation risks.
**Interviewer:** Looking ahead, what’s your forecast for the Australian economy?
**Sean Langcake:** We anticipate a slow and steady improvement in GDP growth over the coming quarters. The fundamentals for a gradual recovery are in place. However, we expect growth to remain below trend for the foreseeable future.
**Interviewer:** Sean, thank you for sharing your insights with us today.
