What’s more, Australia’s economy is showing a great deal of resilience, even if the rate of growth has started to slow in this third quarter of 2023. The country’s gross domestic product (GDP) grew by 0.4% quarter-on-quarter, adjusted for seasonality. This figure came as a shock to economists, who had been anticipating a much more robust showing. More importantly, in year-on-year terms, the annual growth in Australia’s population hit a two-year high of 2.1% per annum – strong annual growth which speaks to underlying strong economic fundamentals.
The Reserve Bank of Australia (RBA) should be very pleased with this annual growth figure. Like all states, they definitely have one eye on the inflationary pressures that will come due in 2026. The central bank’s vigilance comes in light of persistent challenges related to productivity growth, which has not improved significantly despite the RBA’s attempts to influence it through adjustments to the cash rate. This failure to promote productivity growth leads to questions about the long-term viability of our economic growth.
The RBA’s apparent narrowing of focus poses greater harms in light of the increase in the NAIRU. If the economy gets hit with a negative shock, such as a new variant or accidents in Taiwan, inflationary pressures could take off. Consumer discretionary household spending ground to a halt, increasing by just 0.3% q/q. This change is a reflection of consumers exercising more caution amid increasing expenses and an economic cloudiness. This was despite household consumption growing at a robust clip of +0.5% q/q. This increase is further evidence that very basic, necessary, spending is still holding up pretty well.
Government spending was another factor keeping the economy afloat, as it grew 0.8% q/q. This increase was somewhat counterbalanced by a shift away from perceived discretionary spending by households. In stark contrast, private investment shot up by 2.9%, with public investment jumping even higher at 3.1%. This surge in investments highlights a willingness among businesses and the government to spend on infrastructure and development projects, potentially laying a foundation for future growth.
From that perspective, the expansion in the third quarter was shockingly lukewarm. This surprise drop has started a lot of conversations about what’s really going on with the economy. The details, while still somewhat sparse, have some analysts excited about the investment potential. They caution that sustained growth in household consumption is key to maintaining the momentum.