GDP lifts but has it got the strength to hold Australia up?

Treasurer Jim Chalmers said the September quarter results showed the Australian economy performing solidly in the face of steep headwinds from overseas as well as considerable and compounding pressures on Australian families and businesses.

The latest figures showed GDP grew by 0.6 per cent in the September quarter to be 5.9 per cent higher through the year.

Growth was driven by household discretionary spending, which continues to recover from its pandemic lows. Consumption grew by 1.1 per cent in the quarter, reflecting strength in spending on discretionary services and has increased by 11.8 per cent through the year.

Compensation of employees grew by 3.2 per cent in the quarter, the strongest since 2006.

As well, dwelling investment grew by 1.0 per cent in the quarter and there remains a strong pipeline of housing projects to be completed.

New private business investment rose by 0.7 per cent in the quarter, to be 3.7 per cent higher through the year. This was largely driven by increases in new engineering construction and new building.

The household savings ratio fell for the fourth consecutive quarter from 8.3 to 6.9 per cent and the national account measure of prices rose rapidly in the quarter.

ACCI chief executive, Andrew McKellar, said while productivity is improving, it remains well below what is needed to support economic growth through the uncertain period ahead.

“Businesses need policies that assist them to lift productive capacity through investment in skills, technology, and infrastructure. Government has a key role to play in addressing inflation to support business growth and job creation,” he said.

“The tightness in the labour market is now clearly feeding through to higher wages. Businesses are delivering the strongest rate of wages growth since December 2006. Compensation of employees in the private sector was up 3.4 per cent in the quarter, compared to just 2.4 per cent in the public sector.”

Mr McKellar said it was important for the government to heed the Reserve Bank’s concerns over the risk of a wage-price spiral.

“Higher wages growth makes it all the more difficult to stop inflation from becoming entrenched. As such, the government must work as hard as it can to control prices,” he said.

“At the same time, business profitability is being squeezed, with gross operating profits falling 12.4 per cent during the September quarter. 

“Also concerning is the turnaround in business investment, with capital expenditure on plant and equipment falling 3 per cent.

“The early impact on consumers from rate rises is becoming more apparent with growth in household consumption settling back to 1.1 per cent in the third quarter. Given we are yet to see the full effect of rate increases and more are likely in the new year, we anticipate growth in household spending will continue to decline.

“While still above pre-pandemic levels, the household savings ratio continues to decline dramatically, as the buffers built up through the pandemic are eaten away by rising costs.”

Meanwhile, Business Council CEO, Jennifer Westacott, said the job of shielding Australians from global uncertainty is getting harder.

“The national accounts have some good news with workers getting more money in their pockets, but there are storm clouds on the horizon,” she said.

“Strong household spending helped keep the economy on track and people in jobs, but as interest rate hikes set in and our productivity rate continues to flounder the risk to Australians grows.

“Wages are coming back but relying on labour shortages and a tight jobs market isn’t sustainable, the only way to ensure Australians can get ahead is with a clear focus on reform that drives productivity.

“If we don’t act to lift productivity by driving investment, innovation and new industries, the hip pocket gains for Australians will be short lived and they’ll continue to fall behind.

“Record prices for our commodities have begun to fall, and that leaves Australians exposed.

“The job of making ourselves a more competitive place to do business, employ and expand is more urgent than ever.

“While the powerhouse mining and construction sectors are helping keep the economy growing, manufacturing went backwards.

“We must pull every lever to boost our competitiveness and attract new investment by building certainty and making ourselves a more attractive place to do business to secure a future made in Australia.

“We can’t control the global economy, but we can act at home to skill Australians, drive investment and supercharge the local economy.

“New complex workplace relations laws and the prospect of big intervention in energy markets risk adding to the uncertainty plaguing the global economy.

“We’ll have to work even harder in other areas to secure Australia’s future.

“National Cabinet must make reviving productivity growth and locking in higher business investment a priority.”