Australian Economic Update: GDP Q2 2024

Australian Economic Update: Australia’s GDP grew by 0.2% in Q2 2024, driven by public demand amid weak private sector performance. Australia’s GDP for the second quarter of 2024 showed minimal growth, with a rise of 0.2% quarter-on-quarter and 1.0% year-on-year. This performance was slightly weaker than expectations and in line with consensus. Key components such as consumption fell short of forecasts, while net exports and public demand emerged as significant economic support.

The latest data indicates that overall economic growth remains weak. Despite a rising population masking the decline in per capita terms, growth has faltered for six consecutive quarters. Public sector support has been crucial, as private sector components showed considerable weakness.

Productivity fell during the quarter, influenced by sluggish mining output and increased public sector employment. The productivity trend has been notably soft and weak, leading to high unit labor costs.

NAB Group Economics predicts that the soft growth experienced in the year’s first half will likely be the trough, with modest improvement expected in the latter half of 2024. Economists anticipate growth of around 1% for the year, compared to the Reserve Bank of Australia’s (RBA) forecast of 1.7%. The RBA will need to see more evidence of easing inflation before considering rate cuts, with NAB expecting the first cut in May 2025, though an earlier cut is possible.

Real household consumption fell by 0.2% quarter-on-quarter, marking the first decline since Q3 2023. A 1.1% fall in discretionary spending, which included declines in transport services, clothing, and dining out, drove this drop. However, essential consumption rose by 0.5%, partly due to a 2.4% increase in utility spending as some government subsidies unwound.

Household disposable incomes grew by 0.9% quarter-on-quarter and 4.9% year-on-year. Wage incomes also rose by 1.0% quarter-on-quarter. Real disposable income stabilized, showing a slight increase of 0.1% quarter-on-quarter. Despite this, the savings rate remained low at 0.6%, with a gross savings ratio of 12.8%.

Australian Economic Update: GDP Q2 2024

Dwelling investment saw a modest increase of 0.1% quarter-on-quarter but was still 3.0% below the previous year’s. Business investment declined by 1.5% quarter-on-quarter, though new building construction and intellectual property products provided some offset.

Net exports contributed 0.2 percentage points to GDP growth, rising by 0.5% quarter-on-quarter. However, resource and rural export volumes declined, reflecting a more normal agricultural output after several high years.

Public final demand grew by 1.4% quarter-on-quarter, primarily driven by government consumption. Federal government non-defense consumption rose by 2.3%, reflecting increased social benefits programs for health services. However, public fixed investment declined on an underlying basis for the third consecutive quarter.

State final demand showed positive growth in all states except New South Wales (NSW), which experienced a 0.4% decline. Growth was strongest in the Northern Territory (NT) at 4.9% quarter-on-quarter, driven by mining and public sector investment.

Industry production growth was subdued, with notable information, media, telecommunications, and utilities increases. Conversely, the arts and recreation, retail, and accommodation sectors declined.

Key price measures suggest ongoing inflation pressures. The consumption deflator rose by 0.9% quarter-on-quarter, slightly down from the previous quarter. Wage and labor cost growth measures generally eased, with nominal unit labor costs rising by 1.2% quarter-on-quarter. Productivity remained weak, challenging the RBA’s assumptions of rising productivity growth.

Australia’s economic landscape in Q2 2024 highlights persistent weakness in private sector components, a reliance on public sector support, and ongoing inflation pressures. Analysts expect modest improvements in the second half of the year as the economy navigates these challenges, contingent on effective responses to tax cuts and continued inflation easing.

For the analysis and updates, visit FXAN to stay informed on the latest news and insights. Also, follow us on Instagram.