Australian economy: Activity grows 0.6 per cent in the June quarter

Aussie consumers have come out of “hibernation” to splash cash on cars, furniture and restaurants, helping drive a modest bounce in economic activity.

It boosted economic growth from 0.3 per cent in the March quarter to be 0.6 per cent in the three months to June, according to the Australian Bureau of Statistics.

The figures also beat the Reserve Bank’s expectations of annual growth by rising 1.8 per cent in the year to June, but remained sluggish by historical standards.

RBA Governor Michelle Bullock declared rising consumer spending “welcome” and said the numbers had been “a little stronger” than expected.

Speaking in Perth, she said the news was positive and has followed household incomes and wealth lifting, but acknowledged the numbers would reduce the need for further interest rate cuts.

The chances of mortgage relief later this month were already low and most economists expect the RBA to wait until at least November before another move.

There were signs of an improved mood among households as Australians headed out to end of financial year sales and spent up on recreation and culture.

Consumer spending was the biggest driver of growth and lifted 0.9 per cent for the quarter.

Moody’s Analytics’ Sunny Kim Nguyen said families were “breaking free from their spending hibernation”, while KPMG’s Brendan Rynne said the results were “a lot stronger than anticipated”.

“Households are starting feel better about life in general,” Dr Rynne said.

“We are close to full levels of employment and the combination of stage 3 tax cuts coupled with several rate cuts is helping Australian households to feel better about spending money.”

It was also better news for Treasurer Jim Chalmers who declared the numbers were “a welcome and substantial pick-up in growth”.

“The result was better than most economists expected,” he said.

“Amidst intense global economic volatility, the Australian economy is in an enviable position.

“Australia is one of only six advanced economies that have grown every quarter for the last three years.”

But there was also a warning that the economic rebound would lower the need for interest rate relief with signs recently emerging that inflation may be on the way back up.

“Is this as good as it gets? That’s the question we are asking after today’s GDP print,” HSBC’s Paul Bloxham said.

He estimated that the economy was operating close to the speed limit, which would be growth of just below 2 per cent. Any higher would risk inflation rising again.

“With an upswing in growth and an economy near its full capacity, it is not clear where further disinflation will come from to allow further rate cuts,” he said.

Economists are keeping a close eye on signs that the private sector — businesses and households — can take over the job of driving the economy after years of government spending dominance post-COVID.

While households were saving less and opening their wallets more, companies are still a little cautious about expansion.

Private investment lifted just 0.1 per cent, which EY chief economist Cherelle Murphy said was “troubling”.

“Company profits have been edging down as a share of (the economy) for three years and business confidence measures remain soft,” she said.

“Although there are some areas of strength, such as construction related to data centres, the outlook remains mediocre across most other sectors.”

That would mean sharpening the tax system and improving productivity.

Dr Chalmers agreed it would need to be a top priority.

“Business investment will be the key going forward,” he said.

“If we can get more investment and make our economy more productive, we can make it grow quicker, lifting real wages and living standards over time.”