Australia’s economy is growing at an annual rate of 2.8% after a solid pick-up in private investment in the September quarter.
Gross domestic product (GDP) grew by 0.6% in the September quarter, in seasonally adjusted terms, helping the annual growth rate jump from 1.8% in the June quarter, and leaving the economy on track to reach the Reserve Bank’s growth forecast for the year.
The treasurer, Scott Morrison, says the result is “an encouraging set of numbers” and shows the wisdom of the government’s decision to focus on investment.
He said Australia’s economy was growing faster than the average growth rate of Organisation for Economic Cooperation and Development countries (at 2.6%), putting the economy “back up towards the top of the pack of major advanced economies”.
But economists say the growth figures are disappointing because the strength in private investment has masked worryingly weak household consumption.
“Today’s print is not a good number,” a JP Morgan economist, Sally Auld, said.
A Westpac economist, Andrew Hanlan, has also pointed out that the jump in the annual growth rate to 2.8% has a technical reason: the quarterly profile for GDP over the past year is now 0.9%, 0.4%, 0.9% and 0.6% (which equals 2.8%).
It was helped by the -0.3% figure for the September quarter 2016 falling out of the calculation.
Bureau of Statistics figures show consumer spending grew by just 0.1% in the September quarter, compared with a forecast 0.4%, making it the weakest quarterly print since 2008.
The spending figure was so weak because households pulled back significantly on spending at cafes and restaurants, on recreation, household goods, alcohol and tobacco and health services.
Households also started saving more in the September quarter, a possible sign that people have become more reluctant to run down their savings to fund consumption. The household saving ratio increased from 3% to 3.2%.
Households also pulled back on renovations. The -0.1% drop in dwelling investment in the September quarter – the third decline in a row – was due to a 4.8% fall in alterations and investment.
Weak wages growth weighed on household budgets again, despite the declining unemployment rate. Average labour earnings increased by just 0.3% in the quarter and 0.6% over the year, and household disposable income rose by just 0.5% and 1.8% over the year, barely above the rate of inflation.
“This print will come as a major disappointment for the RBA,” Westpac’s chief economist, Bill Evans, said.
“The big concern is whether households, the engine of the economy, accept that expectations of a lift in wages growth are unjustified and it becomes necessary to adjust spending to a lower income outlook.”
The NAB’s chief economist, Alan Oster, said the household sector dynamics were a concern.
“While total compensation of employees was solid at 1.2% quarter-on-quarter and 3% over the year, this is almost entirely due to strength in employment rather than wages,” he said.
Morrison said the important thing to focus on was private investment, because its contribution to growth more than tripled in the quarter.
“Looking specifically at investment, new private business investment is now growing at the strongest rate since the peak of the mining investment boom in 2012, expanding by 2% in the quarter and 7.5% through the year, to eclipse the 20-year average,” he said.
“We have now seen four consecutive quarters of investment growth, following 12 consecutive quarters of decline.
“Business conditions, as surveyed, are at their highest level in 20 years … our enterprise tax plan is a key part of this, which is why it must be supported.”
Morrison was asked if the commonwealth budget could still afford to deliver personal income tax cuts and corporate tax cuts before the next election, as promised by the prime minister, Malcolm Turnbull.
He replied with one word: “Yes.”