Australians are hurting the economy by not spending, with household savings soaring as consumer spending plummets to its lowest level since the global financial crisis.

Key points: GDP growth stepped down from 0.6pc over the quarter to 0.4pc

GDP growth stepped down from 0.6pc over the quarter to 0.4pc Households appear to saving rather than spending their tax returns, as savings rose while discretionary spending saw its weakest growth since the GFC

Households appear to saving rather than spending their tax returns, as savings rose while discretionary spending saw its weakest growth since the GFC Overall growth was propped up by exports and government spending, particularly in health and disability services

The much anticipated turning point in Australia's economic fortunes still seems some way down the road, with the key measure of economic growth, GDP, growing at a well below average annual pace of 1.7 per cent.

The economy grew just 0.4 per cent over the September quarter, according to the ABS, below expectations and slower than the previous two quarters.

"The economy has continued to grow; however the rate of growth remains well below the long run average," Australian Bureau of Statistics chief economist Bruce Hockman said.

He said the biggest factor was insipid consumer spending, which increased just 0.1 per cent over the quarter, the weakest performance since the global financial crisis.

"The reduction to tax payable did not translate to a rise in discretionary spending, which led to a visible impact to household saving," Mr Hockman added.

People like Gretta Dunn, a mother of two living in south-west Sydney who works part-time, are the reason the household saving rate rose to 4.8 per cent.

Gretta Dunn and her husband are sinking as much spare income into their mortgage as they can. ( ABC News: John Gunn )

"The cost of living is going up and our wages aren't really going up as much, so for that reason we are really self budgeting and concentrating on saving money," she said.

"Whatever money we save just gets put onto the mortgage.

"I'd like to pay the house off, I'd really like to get that mortgage done and dusted."

On the other side of that coin are business owners like Iftkhar Khan, who has run a grocery store in Ms Dunn's neighbourhood for the past 30 years.

Iftkhar Khan has co-owned a supermarket in Hammondville, south-west Sydney, for 30 years. ( ABC News: John Gunn )

"I think [with] spending, people are very selective of where they go these days," he said.

"I think most people around here still do struggle … the cost of living's still going up, so even if they've got a tax cut, I think it's gone, most people find that money's gone."

Mr Khan is not feeling the worst effects of the retail downturn though, because his store sells mainly essentials, one area where most households, like Ms Dunn's, are not cutting back.

"I'm a big sale shopper, I'll very rarely buy something full price, unless it's food," she said.

As an example of one area that is really struggling, separate figures released on Wednesday showed new car sales fell nearly 10 per cent in November compared to a year earlier, with annual car sales posting their biggest decline in a decade.

People are not spending money on new homes either, with dwelling investment falling 1.7 per cent over the quarter, the fourth consecutive decline as Australia's record apartment-building boom continues its bust.

Instead, growth was largely propped up by net exports, which contributed 0.2 percentage points to GDP, and government spending, powered by the delivery of health and disability services.

Tax cuts saved

Even though the tax cuts generally seem to have been pocketed, not spent, federal Treasurer Josh Frydenberg said the figures indicated the economy was benefiting from them.

"Whether spent or saved, the tax cuts have helped put households in a stronger economic position, making them more financially secure with more money in their pocket, and this will support the economy," Mr Frydenberg said.

"Today's numbers show there has been an increase in economic growth, but what we have seen is the labour market continues to be strong.

"We've seen a pick-up in compensation of employees. We've seen a good story in terms of net exports, and what is happening with our current account surplus.

"Of course, we would like to see consumption to be higher, there is no doubt about that, but obviously people are getting more money in their pocket through the tax cuts."

Domestic economy deteriorated

While annual growth edged up from its decade low of 1.4 per cent in the June quarter, this was largely on the back of the even weaker 2018 September quarter reading dropping out of the calculations.

The data also puts the RBA's assertion the economy has reached "a gentle turning point" under scrutiny.

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The RBA's most recent forecast had the economy growing at 2.3 per cent over 2019, implying an optimistic 0.7 per cent spurt over the December quarter.

"In our view, the fall in private-sector demand suggests that the underlying health of the economy has deteriorated further and is likely to put upward pressure on the unemployment rate," NAB's Kaixin Owyong said.

"The RBA's latest forecasts shows growth returning above 2 per cent next quarter, and back above 3 per cent by end-2021.

"Those forecasts assume a pick-up in consumer spending and investment, which today's data show are in poor shape."

New two-speed economy

CBA chief economist Michael Blythe said the weakness in household spending was the biggest threat to what was fast becoming a new "two-speed economy".

Mr Blythe pointed out the contribution of the public sector was in stark contrast to weak private spending.

Private sector spending fell by 0.1 per cent for the quarter and down 0.3 per cent for the year, while public spending was up 1.1 per cent and 4.8 per cent respectively.

"Back in the days of the mining boom we often talked about a two-speed economy — the mining states versus the rest," Mr Blythe noted.

"The Australian economy is still running at two speeds, but the divide now is between booming public spending and anaemic private spending.

"A sluggish consumer performance has failed to offset declines in residential investment spending and business investment.

"Beyond this private-public divide, the economy continues to benefit from a respectable export performance despite the slowdown in the global economy."

ANZ's Felicity Emmett noted the weakness in the private sector was becoming more entrenched.

"Consumers and businesses essentially went on strike in the third quarter, with consumption and investment both very weak. Overall private sector demand fell again," she said.

Mr Khan said it was "definitely the toughest" business conditions he had experienced in the 30 years he had run his grocery store.

"Margins are under pressure, because we're all trying to compete with the supermarkets, the Coles and Woolies," he said.

"And your expenses with electricity, obviously there's wage increases each year and rents, insurance, all going up."

It is no wonder then that businesses like his are refusing to risk large investments to expand or renovate.

"That's quite often big money, which a lot of stores, including us, probably would find very hard to do," Mr Khan added.

Ms Emmett said, with growth so narrowly based, the outlook for the economy remained very uncertain.

"There are few reasons to hope for a short-term recovery given that investment plans have been cut, housing approvals are still trending lower and consumer confidence remains in the doldrums.

"It seems inevitable that the economy will require further policy stimulus to lift it out of its current funk."