Australia's economy grew by 2.4 per cent in 2017, below expectations

Updated

Australia's GDP growth slipped to 2.4 per cent over 2017.

Key points: Real GDP rose 0.4pc over the quarter, but stepped down 2.4pc over the year, well below the long-term average of closer to 2.9pc

Rise in consumer spending helped offset drag of net exports and slowing construction

Total wage growth over quarter rose 1.1pc, reflecting strong jobs growth, while average earnings flatlined

It is a step-down from the annualised rate of 2.8 per cent recorded in the third quarter, and weaker than market expectations.

It also means that there was no acceleration from 2016, when GDP also grew at 2.4 per cent.

"Growth this quarter was driven by the household sector, with continued strength in household income matched by growth in household consumption," Australian Bureau of Statistics chief economist Bruce Hockman said.

Household consumption rebounded to 1.0 per cent over the quarter propped up by higher discretionary spending in hotels, cafes and restaurants and recreation and culture.

The big drags on growth were net exports — particularly in rural goods and tourism — while residential construction and a sharp fall in larger scale engineering and construction took their toll.

Wages per employee flatlining

Mr Hockman said a 1.1 per cent increase in employee compensation was a "solid" result.

"The increase in wages is consistent with stronger employment data reported in Labour Force, as well as a lift in the growth rate in the wage price index observed over the past two quarters," Mr Hockman said.

However, wage growth was slower than the 1.2 per cent recorded in the third quarter, while average compensation per employee — which takes population growth out of the equation — fell to zero over the quarter, the worst performance in two years.

Treasurer optimistic

Treasurer Scott Morrison said the figures showed 2017 was "the year of jobs" and provided reasons to be optimistic about the economy.

"Today's national account reveals the continued resilience of Australia's domestic economy, with Australians backing themselves, getting jobs, spending more and investing more, particularly where it matters in our economy," Mr Morrison said.

He said the fourth-quarter results were in line with forecasts provided late last year in Treasury's Mid-Year Economic and Fiscal Outlook.

Mr Morrison said consumers were now more confident and household consumption was the strongest December quarter since 2010.

"Through the year, consumption growth was up almost 3 per cent at 2.9 per cent, and that reflects the growth in consumer confidence that we have been seeing now for some time," he said.

Mr Morrison defended the low wage growth outcome, saying while there had been improvements, more needed to be done.

"But it would not be true to say that that growth in what people have got paid, the total wages bill, was not driven in part, or at least was by one-third over the last year, I stress — over the last year — was driven by changes in average wages," he said.

Productivity continues to slide

CBA chief economist Gareth Aird noted employment grew by 2.2 per cent last year and that would normally point to output growth of about 3 per cent.

"But today's data indicates that the Australian economy only grew by 2.3 per cent in 2017 (calendar year basis)," Mr Aird said.

"The implication is that productivity growth is weak.

"GDP per hour worked, a measure of productivity, actually fell by 0.1 per cent in 2017."

Falling savings rate a worry

J.P Morgan economist Ben Jarman said the softer than expected headline number meant the RBA will need to lower its sights on the forecast recovery back to three per cent growth this year.

"That is particularly so against the backdrop of a constrained consumer, where the saving rate has now fallen to a new low, after downward revisions, of 2.7 per cent," Mr Jarman said.

Mr Jarman said the concern with the declining savings rate — with the third quarter figure also revised down — was that it will not be able to prop up consumption for much longer without continued strong jobs growth.

"The saving rate has now fallen nearly seven percentage points from its financial crisis-period peak in 2008," he said.

"This has been very supportive for consumption growth in recent years, and so without further downward adjustment in the saving rate, 2017's very strong rate of labour force growth would have to be maintained — which is not forecast — otherwise consumption will decelerate."

Mr Jarman said the Reserve Bank's most recent quarterly Statement on Monetary Policy released just last month was already looking dated.

"The [RBA] staff projected 3.25 percent over the year growth by year-end 2018 in the February SoMP, though the Governor's language in the last couple of days reflects some back-pedalling from this," he said.

"Another set of downward revisions in the next forecast round in May would underscore the fact that the RBA will lag the global rate normalization process by some distance."

Topics: economic-trends, industry, money-and-monetary-policy, australia

First posted