Australia’s economic growth has come in slightly below expectations, with GDP growing by 0.6 per cent in the September quarter and 5.9 per cent through the yearThe result was Australia’s fourth consecutive quarter of economic growth following a contraction during the COVID-19 Delta wave lockdowns last year, but growth decelerated from 0.9 per cent the quarter before.Economists were also generally expecting a slightly stronger reading of 0.7 per cent.Consumer spending was a key driver of the economic growth, as life returned to more normal patterns after two years of significant pandemic disruption.Household spending rose 1.1 per cent for the quarter, contributing 0.6 percentage points to GDP, according to the Australian Bureau of Statistics (ABS).The national accounts data showed growth was driven by a 5.5 per cent jump in spending at hotels, cafes and restaurants, a 13.9 per cent rise for transport services and a 10.1 per cent increase in the purchase of vehicles.”Households continued to increase spending on domestic and international travel as COVID-19 travel restrictions continued to ease,” Sean Crick, the head of the ABS national accounts unit, said.”Spending on new vehicle purchases increased as international supply-chain constraints eased, enabling an increase in vehicle imports.”GDP ‘will come to a standstill’However, most economists are not expecting this spending spree to last in the face of higher interest rates.”GDP growth will come to a standstill next year,” Capital Economics analyst Marcel Thieliant said.”The decent rise in third-quarter GDP probably marks the last hurrah for Australia’s economy as tighter monetary policy and falling real incomes weigh on spending.”Mr Thieliant is expecting economic growth to be just 1 per cent next year, which is not dramatically different to the Reserve Bank’s forecast of 1.5 per cent.Liam Zhou owns 12 Chinese food outlets in Melbourne, ranging from high-end restaurants to fast foodHis on-the-ground business experience gives him a similar outlook on the economy.”I think next year is going to be slow,” he said.”The proper dining restaurant, higher level one, used to be very well, because a lot of people gathering together.”We are opening more fast food restaurants at the moment. I think fast foods is more essential in this market.”Meanwhile, Sydney-based furniture retailer Michelle Lam said her business had already hit a rough patch, other than a boost during the recent Black Friday sales.”We had the best-ever November, but we don’t know what will happen at December, so we try to do everything possible we can to increase the sales,” she told The Business.”But the months of July, August, September, October were actually really tough for us.”Ms Lam said rising interest rates were affecting the spending habits of customers.”Disposable income is decreased, and they take longer to make a decision.”Pay packets see biggest boost in 16 yearsOne factor propping up the economy for now is a stronger rise in the compensation of employees.The ABS said a 3.2 per cent rise in the quarter was the biggest since December 2006, driven by very low unemployment and larger-than-usual annual increase in minimum and award wages.It was also driven by an increase in workers, with compensation per employee up a slightly lower 2.5 per cent.A 2 per cent jump in real unit labour costs was confirmation to employee pay was genuinely accelerating, although this measure was still down 2.5 per cent over the past year.However, a significant part of the increase is not actually available for households to spend immediately, with a rise in the super guarantee from 10 to 10.5 per cent on July 1.Some of that extra income has also been sucked up by a 36 per cent surge in interest payments as rates climbed over the quarter, although Mr Thieliant says the effect has been smaller than he expected.”While household interest payments jumped, around two-thirds of that increase was offset by higher interest revenue,” he observed.”So even though the RBA’s cash rate was 1.4 percentage points higher on average across the third quarter relative to the second quarter, net interest payments only knocked off a modest 0.3 of a percentage point from household disposable income last quarter.”However, further rate rises since then will suck even more money away from the household sector, which has already reduced its saving rate further down towards pre-pandemic levels from 8.3 to 6.9 per cent.Banks profit, manufacturers face ‘existential crisis’Beyond the household sector, Australia is also now facing headwinds as the latest commodity price boom starts to unwindAustralia’s terms of trade fell 6.6 per cent, the largest fall since June quarter 2009, as import prices increased and export prices fell.Weaker demand for some mining commodities, particularly iron ore, drove export prices down and triggered a 7.1 per cent fall in mining operating surplus in September to $78 billion.While mining lost some of its recent super profits, the financial sector profited from passing interest rate increases onto borrowers.The operating surplus of financial corporations jumped 4.9 per cent, increasing at its fastest rate since September quarter 2008.However, manufacturing saw both a fall in output and a decline in income as the sector continued to struggle with high input costs and supply chain issues.At Flickers textiles company in Melbourne, business is down 50 per cent compared to previous years, as inflation pain spreads through the economy.”This is the first time we’ve really felt an existential crisis,” owner Yaron Flicker said.”I mean, my competitors have disappeared over the years with gradual deterioration.”But this is really leaving almost no customers that can afford to buy locally.”Mr Flicker said, while general inflation across the economy is set to hit 8 per cent this year, for his industry it is much higher.Every input cost for his business has gone up and he said his bills have increased from about $40,000 a month to $40,000 a week.”Well, next year is looking at the moment to be fairly gloomy, to be honest,” Mr Flicker said.”There’s just such a rush, a glut of imports mostly come from China, but not exclusively. And the Chinese, they’ve got cheap energy.”So, even though they were cheaper than us anyway, and now they’re even cheaper still.”Mr Flicker said if governments do not manage to force down energy prices, much of the remaining local manufacturing industry will not survive.”We’re a country that wants to make things,” he argued.”We take Australian cotton and Australian wool. We add gas, electricity, water and the ingenuity of my team and we make beautiful fabrics, that’s not something to just throw away.”I think the government has to be bold and fair, and realise that the government is for all Australians, not for five gas producers.”
This article was originally published by abc
