Australian economy continues to shrink on a per capita basis

National accounts data released by the Australian Bureau of Statistics (ABS) today show the Australian economy grew by 0.2% in the June quarter of 2024, and 1.0% over the past 12 months. Outside of the pandemic, this was the slowest rate of annual economic growth since the early-1990s recession and the sixth consecutive quarter in which gross domestic product (GDP) per person has contracted. 

Economic growth in the quarter was supported by growth in government spending and service exports, which offset decreases in household spending and total investment. 

Government spending increased by 1.4% in the quarter and 4.7% over the year. Total spending by governments is now at a record share of the economy (27.3% of GDP from the previous peak of 27.1% of GDP in the September quarter 2021). This surge was led by social assistance benefits to households, expenditure on national programs providing health services, state and local government expenditure, and increased employee expenses across most states and territories. 

Household consumption fell by 0.2% in the quarter – the weakest result since the September quarter of 2021, during the COVID-19 lockdown. Consumption has increased in real (inflation adjusted) terms by just 0.5% over the past year, while population growth is running at around 2.5%. Consumers have pulled back on non-essential spending like buying new clothes or furniture as they manage the pressures of soaring mortgage rates and elevated inflation. Discretionary spending fell 1.1% in the June quarter, following a lift in the previous three months. 

Real household disposable income remains a considerable 4.7% lower than in the September quarter 2023. With the savings ratio remaining at 0.6% it appears households are using any modest lift in real incomes to buy essentials. Essential spending increased 0.5% in the quarter, led by utilities, which saw 2.4% growth due to a reduction in electricity rebates provided during the quarter, and increased demand for heating during the winter months. Food spending decreased by 1.0% as higher prices forced households to turn to more affordable eating options.

Chart 1: Contributions to quarterly growth in GDP, seasonally adjusted

Source: ABS National Accounts

There are signs that the weakness in consumer spending is spilling over into businesses, with private business investment falling by 1.5% in the June quarter, to be just 1.6% higher over the last 12 months. At the same time, public investment fell by 0.5% over the year as existing projects were completed. Strong underlying demand for housing is still only modestly flowing through to dwelling investment, which rose by just 0.1% in the quarter and is some 3.0% lower over the year. Meanwhile, net trade contributed 0.2% to GDP growth, with a 0.5% increase in exports and a 0.2% decrease in imports. 

While the pace of economic growth in the June quarter met the very low expectations of market forecasters, that headline growth rate hides a fracturing of public and private sector activity.

Australia’s private sector has effectively ground to a halt, with only government spending keeping economic growth in positive territory. Many Australians are already battling through recession-like conditions. Household consumption has fallen in the past three months despite still strong population growth, real retail spending has gone backwards for almost two years, job creation in white-collar private sector industries has essentially stalled, and business insolvencies have recently hit record highs.

With the benefit of tax cuts and other payments to households, growth may lift from the September quarter, meaning today’s data might well represent the bottom of the cycle.

This newsletter was distributed on 4th September 2024. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Larissa Scott, Research Analyst at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• Retail Forecasts: Retail recession – the sequel (29 Aug)
• Employment Forecasts – Jobs: growth and stagnation (22 August)
• World Competitiveness Rankings 2024  (13 August)
• CFO sentiment: Emerging from the storm (06 August)