Cost of living, rates drag on economy as growth slows

Australia's economy is slowing but holding up a little better than expected in the face of higher interest rates.

The economy expanded 0.4 per cent in the final quarter of 2022/23, with strong export growth and public spending countering a hesitant consumer sector.

The 0.4 per cent quarterly result was slightly above the 0.3 per cent consensus forecast and marked flat quarterly growth after the March numbers were revised up.

Annually, the Australian Bureau of Statistics recorded a 2.1 per cent increase in gross domestic product, down from 2.4 per cent through to March.

While the headline figure was stronger than expected, the economy recorded its second quarter in a row of negative growth when accounting for population growth - marking a per-capita recession.

Treasurer Jim Chalmers said it wasn't unusual for per capita GDP growth to go backward.

"And we've now had a couple of quarters in a row, that's because our economy is slowing (due to higher interest rates and global economic uncertainty) at the same time as our population is growing," he said on Wednesday.

Shadow treasurer Angus Taylor said record levels of population growth were the only thing keeping Australia out of a recession. 

"It is clear from the data that Australian families are having to work more hours to keep their head above water," Mr Taylor said.

The pressure on households was evident in the national accounts, with consumption growing a limp 0.1 per cent over the quarter.

Spending on nice-to-haves also shrunk and households struggled to squirrel money away, with the income-to-saving ratio declining to its lowest level since mid-2008.

The weaker consumer sector was unsurprising given the Reserve Bank's aggressive string of interest rate rises that have driven up borrowing costs.

Softer growth is expected by the RBA in the fight against high inflation, but ANZ economist Adam Boyton said the marginally stronger result was unlikely to worry the central bank. 

"While the pace of GDP growth over the first half of 2023 is a little stronger than we anticipated, it’s not materially so," he wrote in a client note.

EY economist Cherelle Murphy said the national accounts showed an economy "slowly finding its equilibrium again" after the extreme of the pandemic and the war in Ukraine. 

"Consumers are focused on essential consumption over discretionary purchases," she said.

"Price increases softened. Firms invested and built capacity, after their supply fell short during the post-lockdown surge in demand."

She said Australia was in a transition phase and the national accounts should be read in that context. 

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