Resilient Aussie economy pushes on despite rate hikes

The Reserve Bank’s campaign to crush inflation without sending the economy backwards has scored a win, with Australia posting slow but steady growth in the three months to the end of December.

National output rose 0.2 per cent in the quarter, according to numbers released Wednesday by the Australian Bureau of Statistics. It was the same pace as in the September quarter and took economic expansion to 1.5 per cent for calendar 2023.

“Slow growth is still significant growth given challenging global conditions and the impact of higher interest rates,” Treasurer Jim Chalmers said.

Interest rates rocketed from emergency lows of 0.1 per cent in May 2022 to be 4.35 per cent — still low by historic standards — an inflation-fighting move some economists had warned would cause a recession.

Two consecutive quarters of negative growth would indicate a recession, yet the economy has avoided going backwards. The jobless rate is only 4.1 per cent.

Australians are feeling the pinch nonetheless.

In per person terms, GDP fell for the fourth consecutive quarter. Household spending increased by merely 0.1 per cent nationally.

Commonwealth Bank head of Australian economics Gareth Aird said “the RBA’s highly aggressive rate hiking cycle has clearly worked to slow demand growth in the economy”.

“Rising mortgage payments along with a lift in tax payable and the effects of elevated inflation have weighed on household purchasing power.“

Investment by businesses — particularly on non-residential construction — and a good trade performance helped keep the economy moving.

EY chief economist Cherelle Murphy said the figures “don’t give us reason to be worried”.

“Had GDP growth not been soft we would have had to endure another chapter of ‘Reserve Bank slays the inflation dragon’,” Ms Murphy said.

“The fact that we continued to see business investment remain positive while the unemployment rate stayed low and inflation moved down during the quarter, was good news.”

She said conditions would be better to end the year with further investment spending expected and governments cushioning households.

KPMG chief economist Brendan Rynne said the RBA may cut interest rates sooner than predicted, while ANZ senior economist Blair Chapman said the new data did not change the bank’s view on rate relief.

In its February meeting, the central bank signalled there would be no rush to cut rates. “A further increase in interest rates cannot be ruled out,” the RBA said in that statement.

The bank’s position has generally been more hawkish — focused on stopping inflation — than the consensus of economic commentators for most of the past two years.

The numbers also sparked debate on high levels of immigration.

Betashares chief economist David Bassanese said the influx had “saved the economy from recession”, while Institute of Public Affairs deputy executive director Daniel Wild blamed a high migrant intake for GDP heading backwards in per person terms.

The economy has slowed after a stimulus-boosted surge in growth following COVID-19, which temporarily reduced unemployment to 50-year lows and sparked inflation peaking near 8 per cent.

But the Reserve Bank of Australia moved to bring the economy back into a sustainable balance, fighting inflation with a series of interest rate hikes that hit borrowers hard and slowed spending growth.