The 0.4% Australian GDP growth for the third quarter was lower than forecast by the Reserve Bank this week. But although it might have caught Martin Place by surprise, it’s no great shock to many close observers of the Australian economy.

With the retail sector on its knees (the sector is forecast to grow at an anaemic 0.3% in figures due out on Thursday), wages still stagnant and serious doubts about whether the once-booming construction sector can continue to support growth, the outlook touted by the RBA on Tuesday appears quite optimistic.

All this comes despite the economy effectively living on the life support of ultra-low interest rates. There is a growing expectation that the RBA will reduce the cash rate to 0.25% next year – a level associated with the post-GFC emergency in the US and Europe.

The annualised figure for GDP is a healthy looking 1.7% so the bank appears in one sense justified in sticking to its glass half-full outlook in its statement after the monthly monetary policy meeting on Tuesday, in which it kept rates on hold at 0.75%. It said that after a bit of a wobble last year, the economy appears to have reached a “gentle turning point”. It says growth will pick up to 3% by 2021.

But Wednesday’s release by the Australian Bureau of Statistics suggests a worsening picture.

Australians are mostly saving the low and middle income tax offset, according to the @ABSStatsarchive #ausbiz #auspol pic.twitter.com/Tm6yuptCSZ — David Taylor (@DaveTaylorNews) December 4, 2019

Strong exports in resources and services added 0.2 of the 0.4 percentage points, with the other 0.2 coming from what they call final domestic demand. But, in a telling phrase, the ABS statement says government spending was the main contributor to this latter figure. But contrast, private demand is in recession. In other words, Australian households aren’t spending the extra money gifted to them by the Coalition’s tax cuts and from historically low mortgage rates. Household expenditure increased just 0.1% with particular weakness in spending on discretionary goods and services, the ABS said.

In another sign of consumer weakness, sales of new cars fell 9.8% in November, the 20th monthly decline in a row, according to the Federal Chamber of Automotive Industries.

Contribution from household consumption to Australia Q3 GDP just 0.1point. The last time contribution was this low as June 2013#ausbiz #RBA — Sophia Rodrigues (@CentralbkIntel) December 4, 2019

The consultancy Capital Economics, which was one of the forecasters to doubt the RBA’s rosy outlook, said on Wednesday that the “measly” increase in household spending was the “slowest since the global financial crisis and underlines that the government’s tax cuts aren’t providing any boost to consumer spending”.

It said consumption could yet pick up but estimated that GDP growth is “still set to fall short of the RBA’s optimistic forecasts”.

Looking ahead to next year, Capital thinks more rate cuts are nailed on – with a strong chance of money creation schemes such as quantitative easing by the second half of the year.

“We reiterate our forecast that the Bank will cut rates by [o.25%] in February and April and launch quantitative easing in the second half of next year,” Capital said.

Economists at UBS said: “GDP remains soft, with little improvement so far from rate cuts and tax cuts, as households either save more or repay debt; seeing private demand fall into recession.”

Sarah Hunter, chief economist for BIS Oxford Economics, said the figures spelled out the “chronic weakness in household spending” and that households have chosen to save the money from tax and mortgage cuts, noting that the savings rate jumped up to 4.8%.

“Looking ahead, it’s unlikely that we’ll see a substantial acceleration in GDP growth in the near term,” she said. “Broadly speaking, today’s data confirms our view that on an annualised basis the pace of growth is broadly likely to hold around 2% for the next 12 months.”

Josh Frydenberg had enough positives to defend his record when he responded to the GDP figures on Wednesday. Tax cuts were good for the economy, he said, and so was infrastructure spending. But unless those things translate into people feeling better off, a cloud will remain over the Treasury.



