Someone's doing the heavy lifting – and it's not the government (any more)

Sydney Morning Herald

2 days ago

State governments, meanwhile, actually reduced spending in the first three months of the year with most winding back energy bill relief as cost of living pressures have eased.
Some of the pullback in spending growth – especially nationally – is probably thanks to the budget's 'automatic stabilisers': government payments such as unemployment benefits which naturally fall as the economy improves (and rise when the economy is in the doldrums and people are losing their jobs).
While it's welcome news that private businesses and households seem to be regaining some of their gusto, neither were close to shooting the lights out.
But the flat government day-to-day spending and fall in government investment spending (partly due to the completion of projects such as Sydney's metro) certainly seem to suggest they've become happier to sit on the bench and let private businesses and households make more of the runs. This fall in public demand ended up subtracting the most from overall quarterly growth since 2017.
The overall picture is also a bit murky after quarterly growth in the economy slowed to the lowest rate since March last year. And GDP per person – generally a better measure of our living standards than total national GDP – slipped 0.2 per cent in the March quarter.
While it's welcome news that private businesses and households seem to be regaining some of their gusto, neither were close to shooting the lights out.
Household spending is one of the most hotly anticipated pieces of the puzzle because Australian households spending accounts for more than half of the country's GDP. That means what consumers choose to do has an outsized effect on our economy.
Turns out we went more gangbusters on holiday sales last year than economists were expecting, but then decided (perhaps as our New Year's resolutions) to rein in our spending.
We still splurged on big events including going to see artists such as Billie Eilish. And a warmer-than-expected summer (as well as the pullback in energy bill relief) meant that – whether we liked it or not – we had to splash more cash on keeping ourselves cool. That all contributed to household spending climbing 0.4 per cent.
But when it came to spending that isn't strictly necessary, our purse strings tightened a bit, suggesting we're still treading cautiously.
Partly thanks to Donald Trump's unpredictability spooking us, we decided to squirrel away a bigger chunk of our income – even though we were generally earning more – in the March quarter. In fact, the saving ratio (which measures the proportion of our disposable income we stow away for a rainy day) climbed from 3.9 per cent to 5.2 per cent: the highest it's been since 2022.
Another factor feeding into that higher savings ratio was Ex-Tropical Cyclone Alfred in Queensland which led to the government (and insurance companies) paying out to those affected – who in turn, ended up stashing a good portion of it away.
Investment by the private sector took the podium when it came to the part of GDP with the strongest growth, rising 0.7 per cent in the March quarter. That was largely thanks to a stronger appetite for investment in dwellings, including building houses and making renovations, perhaps helped along by the first cut to interest rates in nearly four years.
Businesses were also eager to sink money into manufacturing projects and more digging – not just for gold but for other minerals, too – contributing to the growth in private investment.
Net trade – exports minus imports – meanwhile, weighed down our overall growth, wiping 0.1 percentage point from the March quarter. While both imports and exports fell, the drop in exports was bigger. Production and shipments of coal and liquefied natural gas were disrupted by severe weather which, together with subdued growth in the number of international students and less spending per student, drove down Australia's exports.
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The implications of all this data for the Reserve Bank – and thus for all of us – is not immediately clear. The national accounts are always a delayed set of data (a good deal can change in the following three months), and there are signs of both continued weakness and of renewed strength in the economy.
The step back in public spending will probably make it easier for the Reserve Bank to drive forward with another rate cut next month – especially given they were close to slashing rates by 50 basis points at the last meeting, price pressures seem to have faded into the background, and growth is crawling along at snail's pace.
With unemployment laying low, the inflation dragon tamed, and the private sector stepping up, there are glimmers of hope that Chalmers and the RBA have struck gold in our economic management. Now it's about safeguarding the spoils by pulling up productivity and getting economic growth well off the ground.