Economic recovery at risk as spending rebound slows
Jacob Shteyman |
Australians pulling back from restaurant and holiday splurges has slowed the recovery in consumer spending.
Household spending grew 0.1 per cent in August, the Australian Bureau of Statistics revealed on Thursday, below consensus estimates of a 0.3 per cent rise.
The result is a speed bump in a five per cent increase in consumer spending in the past year, driven by falling interest rates, slowing inflation and rising real wages.
The incremental improvement comes after a 0.4 per cent rise in July and 0.5 per cent in June.
“The small rise in August was the fourth increase in a row, and spending has risen in 10 of the last 12 months,” said Lauren Binns, ABS head of business statistics.
Spending on recreation and culture fell 0.9 per cent, while hotels, cafes and restaurant expenditure grew at just 0.3 per cent following a 1.4 per cent jump in July.
Growth in consumer spending has been flagged by the Reserve Bank as a potential risk to further rate cuts.
RBA governor Michele Bullock on Tuesday said households could become more comfortable spending rather than saving as disposable incomes recovered, which would be good for businesses but could make inflation more persistent.
Oxford Economics Australia’s Harry Murphy Cruise said it appeared temporary boosts such as heavy discounting and back-to-back public holidays had played an important role in the recovery.
“While real wages have risen in recent quarters, we expect momentum to slow through the remainder of the year,” he said.
“Yes, inflation is back within the target range but years of rapid price rises have taken a toll on household budgets and psyches.”
While household spending was still ticking up, Australia’s long-awaited economic recovery was at risk of stalling without further reform, Deloitte Access Economics warned in its flagship Business Outlook report.
Household spending was ticking up, inflation was falling and wages continued to grow in real terms, but Australia remained vulnerable to international economic uncertainty driven by US President Donald Trump’s trade war, Deloitte partner and report co-author Cathryn Lee said.
“Those green shoots point to growth, but it will remain a grinding and gradual recovery,” she said.
The report forecasts Australia’s economy will grow at an average annual rate of 2.2 per cent during the next decade, down from 3.3 per cent over the three decades before the pandemic.
Disrupted supply chains, ageing populations and debt-laden budgets meant governments around the world were ill-prepared for upcoming challenges, while low wage growth and surging asset prices were deepening the societal divide, Ms Lee said.
“Future prosperity hinges on encouraging businesses to invest more.”
The government’s economic reform roundtable in August achieved some good outcomes, such as cutting red tape, but waiting until after the next election to implement major tax reform would be too late, she said.
Deloitte partner Stephen Smith said economists underestimated the “guile” of Treasurer Jim Chalmers, who arguably had a broad mandate to implement changes after using the roundtable to build consensus around the need to tackle intergenerational inequality.
“In that context, a regularly convened roundtable which hashes out policy concerns, reform options and the best response to Australia’s economic and social issues would be valuable,” Mr Smith said.
While the report made clear the extent of the coming economic challenges, it also showed Australia had a lot going for it, Dr Chalmers said.
“We’ve made a lot of welcome progress together but we know the job isn’t finished because people are still under pressure, global uncertainty is intensifying, and there’s more to do to make our economy more resilient and productive,” he said in a statement.
AAP
