‘Barely growing’: economy limping as rate pain builds

Poppy Johnston |

Did Taylor Swift help save the economy in the March quarter? The numbers suggest that she did.
Did Taylor Swift help save the economy in the March quarter? The numbers suggest that she did.

Households managed to find space in their tight budgets for Taylor Swift concerts and other big-ticket events in the first three months of the year, delivering a bright spot in an otherwise dreary growth report card.

The Australian economy has taken a hit from higher interest rates and still-elevated inflation, logging its slowest through-the-year growth since 1992, outside the pandemic.

The 1.1 per cent annual growth rate was down from 1.6 per cent in the year to December, with the quarterly growth pace clocking in at an insipid 0.1 per cent.

Carlos Sainz of Ferrari at Australian Grand Prix 2024
Fans attending the Australian Grand Prix in Melbourne also helped boost the economy in Q1. (Joel Carrett/AAP PHOTOS)

A weak March quarter was expected, although the results were a touch below economists’ expectations and where the Reserve Bank of Australia thought the economy would be tracking when it last updated its forecasts.

And while the households were still clearly under financial pressure, spending was a little stronger than expected, with weakness driven by other parts of the economy over the quarter, such as public and private investment and export growth.

The 0.4 per cent lift in the household sector reflected higher spending on essentials, like electricity rent and food, as well as select discretionary areas, including splurging on Taylor Swift concerts and the Formula 1 race in Melbourne.

Savings suffered as a result, with households stashing away just 0.9 per cent of their income over the quarter, from a downwardly revised 1.6 per cent and heading towards 16-year lows.

AMP Australia economists Shane Oliver and My Bui said the combination of a slowing economy and a weakening jobs market meant an interest rate cut was still on the cards for 2024.

“We continue to think that there will be scope for a rate cut later this year, as slowing economic growth leads to lower inflation and the RBA attempts to walk the fine line of avoiding a recession in Australia,” they wrote in a note.

The economy has been losing steam as higher interest rates work to dampen demand and weigh on inflation, which has been moderating but remains above the central bank’s two-three per cent target band.

Treasurer Jim Chalmers
Treasurer Jim Chalmers conceded the economy “is barely growing”. (Mick Tsikas/AAP PHOTOS)

A slower economy is an expected consequence of the central bank’s series of interest rate hikes, but the goal is to tame inflation without nudging the economy into recession and pushing unemployment up needlessly high.

The economy was still on this “narrow path”, RBA governor Michele Bullock confirmed during a parliamentary hearing on Wednesday.

On the trajectory for interest rates, she reiterated the board was “not ruling anything in, ruling anything out”.

Treasurer Jim Chalmers said he would not speak for the central bank on its interest rate decisions but “it’s clear to Australians more broadly that the economy is barely growing”.

His last budget, released in May, faced criticism for adding too much new spending and potentially fuelling inflation.

Travellers wait at a baggage claim carousel at Melbourne Airport
An increase in travel also helped keep the economy growing in the March quarter. (Joel Carrett/AAP PHOTOS)

Dr Chalmers said the weak growth figures proved those assessments “dead wrong”, with the budget strategy “exactly right” for a weak economy.

Shadow treasurer Angus Taylor said the national accounts were a “shocking set of numbers” and the federal budget was not helping as it would add to inflation.

“There’s a whole row of economists out there all saying that (the budget is) expansionary,” he told reporters in Canberra.