December quarter national accounts released by the ABS on Wednesday showed overall GDP growth was broadly in line with market consensus after it posted a 0.2% result. 

Market consensus, including CommBank and NAB, pencilled in a meagre 0.2% growth in the three months to December, weaker than RBA’s forecast of 0.3% in its latest Statement of Monetary Policy. 

Throughout the year, GDP rose 1.5% in seasonally adjusted chain volume measures and 4.4% in current prices. 

Beneath the headline figures though, GDP per capita contracted by 0.3% as Australia’s population grew 2.5% on account of border reopening.

GDP per capita measures the growth of a nation by its population. While population growth contributes to the overall increase in GDP, a large figure shrinks the average per person. 

Over the 12 months ending December, GDP per capita plunged 1.0%, signifying that Australia was in a per-capita recession throughout the year. 

“Growth was steady in December, but slowed across each quarter in 2023,” ABS head of national accounts Katherine Keenan confirmed. 

According to major bank economists, Australia “has gone backwards a lot” in per capita terms in the second half the year. 

“The recent run of quarterly changes in real GDP paint a picture of an economy that has slowed significantly,” CommBank head of Australian economics Gareth Aird noted.

The quarterly changes in GDP growth in 2023 barely hit the 1.0% mark, as reads show the economy modestly expanded by 0.6% (Q1), 0.5% (Q2), 0.3% (Q3), and 0.2% (latest).

But economists over at AMP are optimistic that things will get better soon. 

“A per capita recession has happened multiple times in the past, and while weakness in per capita growth is negative for living standards, we expect an improvement as population growth slows and GDP growth starts to improve again later this year,” AMP chief economist Shane Oliver said. 

Productivity, measured by GDP per hour worked, was also down 0.4% through the year despite positive growth in the third and fourth quarters.

This can be a real cause of concern for the RBA as real unit labour costs jumped 3.7% off the back of strong wage growth.

The wage price index showed salaries in Australia in 2023 were 4.2% higher than the year prior, outpacing productivity by 380 basis points. 

Higher wages amid low productivity levels tend to put inflationary pressures on the economy as it means producing goods and services is much more expensive. 

Aussie households saving more

The household saving ratio posted a result of 3.2%, as income received by households outpaced their expenses.

“Compensation of employees and government payments were the drivers of the increase in income received by households in December,” Ms Keenan said. 

“Government payments were raised with increases to the base rates of payments across a variety of benefits such as JobSeeker and youth allowance; an increase in Commonwealth rent assistance; and the standard indexation of benefits that occurs in late September.”

But before chalking this positive, albeit meagre, growth up to households having more income received, the ABS said the fall in expenses was a result of less income tax paid following an increase in the September quarter. 

“This growth has contributed to the 11.5% increase in income tax payable across 2023,” according to the ABS. 

By comparison, employee compensation rose  8.5% over the year, which means tax paid went up faster than income growth. 

While changes to the Stage 3 tax cuts will lower the taxes paid by low- to middle-income earners this year, the amendments will not kick in until the third quarter.

What this means for the RBA

The latest GDP print showed RBA's aggressive rate hikes were successful in slowing down demand by weighing on the purchasing power of Australian households.

In fact, consumer spending was weaker than the Reserve Bank anticipated as yesterday's result was just 0.1%, far from the 1.1% forecast in Q4 last year although closer to the 0.4% revision in February.  

Outside of Covid and the GFC, the December read marked the slowest annual growth of household consumption in almost 40 years. 

The upshot is that the RBA will be surprised at the lack of growth in household consumption,” Mr Aird said. 

Despite this, experts see nothing in the release will turn the RBA away from cutting rates in the third quarter of 2024, at the earliest. 

“While growth is below trend and progress is being made on reducing excess demand, household incomes suggest that the RBA should be less concerned about downside risks to consumption,” NAB group chief economist Alan Oster said.

The slowdown is in fact expected to moderate demand-driven inflation rate and keep the RBA on track to cut rates around mid-2024.

“We remain comfortable with our base case for an easing cycle to commence in September,” Mr Aird said. 

NAB also expects rate cuts to begin in September. 

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