Australia economy grows annually

Australia’s economy picked up speed in the June quarter as consumers kept spending and energy exports boomed, offering hope activity can weather sharply higher interest rates and cost-of-living pressures.

National accounts figures show GDP expanded by 3.6% compared with a year earlier as households drew down on savings to keep spending

Data from the Australian Bureau of Statistics on Wednesday showed gross domestic product (GDP) rose 0.9 percent in the second quarter, in line with forecasts and up on the first quarter’s 0.7 percent rise.

Strong economic results come as inflation is running at a 21-year high of 6.1 percent.

Annual growth accelerated to 3.6 percent as the lowest unemployment rate in almost five decades underpinned household incomes and spending.

Indeed, so resilient was the economy that the Reserve Bank of Australia (RBA) has had to embark on an uber-aggressive tightening campaign to try to cool activity and restrain runaway inflation.

The central bank on Tuesday raised its cash rate 50 basis points to a seven-year high of 2.35 percent, bringing the total tightening since May to an eye-watering 225 basis points.

Markets are leaning towards another half-point hike in October, and for rates to reach as high as 3.85 percent given inflation is running at a 21-year peak of 6.1 percent and likely to top 7 percent by Christmas.

Inflation was widespread in the GDP report, with its main price index jumping 6.9 percent for the year, the fastest pace since 1988/89.

Compensation of employees, a proxy for wages, boasted the biggest gain since 2010 as firms were forced to pay to attract and retain staff amid an unemployment rate of just 3.4 percent.

Consumers, however, were still not cowed and household spending added a meaty 1.1 percentage points to growth in the quarter.

Australians have the means to keep shopping as the savings ratio dipped to 8.7 percent, still well above pre-pandemic levels.

“Households increased spending on domestic and international travel as COVID restrictions further eased and international borders remained open,” said Sean Crick, head of National Accounts at the ABS.

The main contributors in the April-June were net exports, which added 1.1 percentage points to GDP growth while household spending held up, contributing 1.1 percentage points. But a drop in the inventories held by firms lopped 1.2 percentage points off the growth.

“Today’s national accounts reflect an economy which is rebounding from the disruptions of the pandemic, but it’s still being held back by capacity constraints, skills shortages and declining real wages,” Treasurer Jim Chalmers told a media conference. 

“This is an economy which is growing, but the challenges are growing as well,” he added.

(Agencies)