Rate cuts may be looming towards the end of the year, as Australia’s economic growth hits its lowest point since early 2021, when the economy was recovering from a pandemic induced recession.
The Australian Bureau of Statistics has recently revealed that annual growth in Australia has slowed to 1.5%, down from 2.1% the previous quarter. Thus, this indicates that Monetary Policy’s 6 - 18 month impact time lag has finally started to take effect on borrowers last month. This is evident in household contributing negatively to growth in the fourth quarter, whereupon a 0.7% rise in spending on essentials was offset by a 0.9% fall in discretionary spending. Further, despite recreational spending increasing (i.e. spending at music festivals was up 76% from January, whilst function transactions leapt 115% amidst various concerts), this failed to offset weakness across seven of the 12 categories of the index, reinforcing the notion of consumers cutting back on spending. Nonetheless, weak consumer confidence has benefitted net trade, through placing downward pressure on Australian imports, adding 0.7 percentage points to fourth-quarter GDP growth. Therefore, treasurer Jim Chalmers has stated that the latest GDP figures showed “the balance of risks in our economy is shifting from inflation to growth”, fuelling expectations of extra spending measures in the upcoming federal budget on 14th May. Furthermore, ex-treasurer, Josh Frydenburg echoes this sentiment in claiming interest rates have likely peaked, and inflation is decreasing.
Nevertheless, with the population growing at its fastest pace in recent history, housing serves as the one asset that has withstood higher interest rates, demonstrated in the value of the nation’s dwellings rising almost 2% in the final 3 months of 2023. Thus, should this trend continue, this should sustain a wealth effect within Australian consumers, bolstering household spending.
