We no longer need to talk about predictions of slower economic growth as last week’s National Accounts confirmed that we are already in the slow growth zone.
Real GDP increased by 0.5% in the December quarter of 2022, and 2.7% growth over the year. This increase was driven primarily by net trade (specifically a large fall in imports) while consumer spending and business investment softened – a sign that interest rates have started to bite.
Interest rate rises and inflation are taking a toll as consumer spending grew by only 0.3% over the quarter, substantially weaker than previous quarters. Though wages continued to grow over the quarter, it wasn’t enough to combat higher mortgage payments and continuing price pressures as household disposable income fell in both real (down 2.2%) and nominal terms (down 0.7%).
As a result, consumers are saving a much lower share of income, with the household saving rate falling from 7.1% in the September quarter to 4.5%, the lowest level since September 2017.
This blog was co-authored by Michelle Shi, an Analyst in the Deloitte Access Economics team.