Growth Slowing As Expected, Unlikely To Shift RBA

Australia’s Q4 GDP printed in line with expectations at +0.2% q/q but annual growth slowed to 1.5% from 2.1% as higher rates, inflation and the unwind of pandemic-related pent-up demand weighed on growth. 2023 slowed to 2.1% from 2022’s 3.8%. Growth was driven by government spending, non-dwelling construction and net exports. While GDP was in line with the RBA’s forecasts, domestic demand was weaker. This report is unlikely to change their on hold stance.

Australia GDP %

Source: MNI - Market News/ABS

• Domestic demand rose only 0.1% q/q to be steady at 2.3% y/y, which was the slowest quarterly rates since Covid. Private consumption was weak rising only 0.1% q/q and 0.1% y/y, after falling 0.2% q/q in Q3, which was driven by spending on essentials. In contrast, government spending rose 0.6% q/q and 2.7% y/y contributing 0.1pp to growth, due to increased benefits, medical spending and employee expenses.
• The household savings ratio may have troughed as it rose to 3.2% in Q4 from 1.9%, its highest since Q1 2023, as compensation and government payments boosted total income and less tax was paid.
• Total private GFCF fell 0.2% q/q to be up 4.7% y/y but non-dwelling construction was strong while residential contracted. Public investment fell as infrastructure projects were completed.
• As announced, net exports contributed 0.6pp to Q4 growth due to weak imports which also drove destocking (inventories detracted 0.3pp). The ABS observed that strong demand also drove down mining inventories.
• The statistical discrepancy weighed on growth detracting 0.2pp from the quarterly rate.

Source: MNI - Market News/ABS