SYDNEY- Australia’s economy slowed in the first three months of the year as the Reserve Bank of Australia’s (RBA) aggressive policy tightening weighed on household spending and on construction, while accelerating labour costs underlined the nation’s inflation challenge.
Gross domestic product (GDP) advanced 0.2 per cent from three months earlier, coming in below economists’ estimates for a 0.3 per cent gain, Australian Bureau of Statistics (ABS) data showed on Wednesday.
From a year earlier, the economy grew 2.3 per cent, slowing from a downwardly revised 2.6 per cent.
The weakest quarterly expansion since the third quarter of 2021 sent the currency down a tad.
The result is unlikely to surprise policymakers who are predicting a substantial economic slowdown over the coming year, driven by 12 rate increases since May 2022, with the latest coming just a day ago.
The report showed that Australians again tapped cash built up during the Covid-19 pandemic to finance consumption as the savings ratio dropped.
Household spending advanced just 0.2 per cent in the first quarter, adding 0.1 percentage point to growth.
“Spending on essential goods and services was the main contributor to the rise in household spending, while discretionary categories such as furnishing and household equipment, purchase of vehicles and other goods and services all detracted from growth,” Ms Katherine Keenan, ABS head of National Accounts, said in a statement.
Labour costs accelerated to 2.4 per cent in the first three months of the year, driven by the public sector and higher-than-usual year-end bonuses.
The GDP data follows back-to-back unexpected RBA hikes that took the cash rate to 4.1 per cent, its highest level since April 2012, threatening the central bank’s goal of a soft landing.
Economists see a better than one-in-three chance of an Australian recession over the next 12 months as higher borrowing costs begin to crimp domestic consumption.
Central banks worldwide have been rapidly tightening policy in response to stubbornly strong inflation, even at the expense of slower growth and higher unemployment.
The United States Federal Reserve is under pressure to keep raising rates as US consumer prices remain elevated, although it may skip at the June meeting.
For Australia’s centre-left government, the GDP data means it has to navigate rising consumer prices, higher borrowing costs and slower growth as it enters a second year in office.
To date, the nation has benefited from elevated export prices that have brought a windfall to the fiscal coffers, including returning the budget to surplus for the first time in 15 years. BLOOMBERG
