Firmer footing for Australian economy later in 2024

Australia's economy is still heading towards a fragile start to 2024 but forward-looking indicators point to a rosier second half of the year.

A surprise shift into positive territory was recorded in future-focused data points collated by Westpac and the Melbourne Institute.

It follows a 15-month run of below-trend readings consistent with an economy slowing in response to rising interest rates and high inflation.

The data index's six-month growth rate, which indicates the likely pace of economic activity relative to trend, rose to 0.30 per cent in November from a negative 0.39 per cent reading in October.

The unexpected jump to an above-trend reading had been spurred by one-off boosts such as a spike in apartment developments that pushed up dwelling approvals, Westpac senior economist Matthew Hassan said.

These temporary boosts would likely drop out of the indicator in coming months, he said.

"The underlying picture is still of an improvement but one that looks to be more consistent with stabilisation than the beginning of a clear cyclical upturn," Mr Hassan said.

Construction crane in Sydney.
The underlying picture looks more consistent with stabilisation than an upturn, one economist says.

Consumer sentiment and dwelling approvals were not settling at weak levels after sharp falls, but industrial production and labour markets are having a delayed reaction to the tightening cycle.

"And while market measures ... may be starting to anticipate a policy easing cycle, this effect was fairly muted in November," Mr Hassan said.

The economy has been slowing in 2023, with the September quarter national accounts revealing a household sector under pressure from rising mortgage repayments and high living costs.

Consumer spending momentum dropped off again in November, based on an index from Visa Australia.

That index, which captures the number of people in spending mode, fell 1.3 points to 90.6 - its second lowest level since 2019.

Discretionary, non-discretionary, fuel and restaurant spending was all subdued.

Financial pressures are also shifting spending habits in favour of discounted shopping, with nearly half of consumers surveyed by Commonwealth Bank planning to take advantage of Boxing Day sales.

Consumers flocked to the Black Friday sales in November for cheaper goods, and Boxing Day discounts are also likely to be popular based on the bank's research.

Of the 1004 survey respondents, 49 per cent were planning to shop post-Christmas bargains in 2023.

This compares with 42 per cent who said they were keen on the post-Christmas sales in 2022, and 40 per cent in 2021.

Shoppers in Sydney.
More people plan to shop post-Christmas sales but will spend less on average, survey results show.

However the average planned spend was lower than the past two years.

CBA personal finance expert Jess Irvine it was no surprise that individual shoppers were tightening their belts.

"While most economists do not expect the Reserve Bank to raise interest rates much further, the cumulative effect of rising costs so far is being felt,” she said.

Mr Hassan said economic weakness signalled by the leading index and showing up in official data was likely to extend into the first half of the year.

This would take pressure off the RBA's hiking cycle aimed at lowering inflation, in part driven by firm domestic demand. 

"This will make the board more cautious about any additional interest rate tightening," he said.

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