Australian economy grew 0.2% in the December Quarter

Australian gross domestic product (GDP) rose 0.2 per cent (seasonally adjusted, chain volume measure) in the December quarter and by 1.5 per cent since December 2022, according to figures released by the Australian Bureau of Statistics (ABS) today. 

Katherine Keenan, ABS head of national accounts, said: “Growth was steady in December, but slowed across each quarter in 2023.”

“Government spending and private business investment were the main drivers of GDP growth this quarter.”

Government final consumption expenditure rose 0.6 per cent this quarter after a 1.5 per cent increase in the September quarter. 

“The growth in government expenditure was driven by government benefits for households, with more spending on medical products and services and higher employee expenses across commonwealth departments. The Referendum on an Aboriginal and Torres Strait Islander Voice held during the quarter also contributed to the rise in employee expenses,” Ms Keenan said. 

Defence spending detracted from growth, falling 3.5 per cent after a 4.8 per cent rise last quarter, when international training exercises were held.

The 0.7 per cent increase in private business investment was driven by non-dwelling construction.

“Investment on non-dwelling building construction in the private sector rose 5.0 per cent. The key drivers of non-dwelling building construction were construction on data centres and warehouses,” Ms Keenan said.

New machinery and equipment (-1.3 per cent) detracted from growth, falling for the first time since September 2022 due to lower levels of spending on agricultural equipment.

Public investment (-0.2 per cent) fell for the first time since September quarter 2022. Stage and project completions on transport and health infrastructure by state and local general government drove the fall. This was partly offset by higher infrastructure investment by state and local public corporations. 

Net trade contributed 0.6 percentage points to GDP growth this quarter as imports fell 3.4 per cent.

Goods imports fell 2.8 per cent with consumption, capital and intermediate goods all experiencing falls. Services imports fell 5.3 per cent driven by travel services as Australians spent less on overseas travel. 

Exports fell 0.3 per cent, primarily from a 0.4 per cent fall in goods exports. Exports fell for non-monetary gold (-8.8 per cent) and rural goods (-2.3 per cent).  These falls were partly offset by rises in coal (3.9 per cent) and mineral ores (0.5 per cent) exports. Services exports rose 0.5 per cent driven by an increase in travel services (1.2 per cent) as visitors continued to return to Australia.

Change in inventories fell $2.7 billion in the December quarter, detracting 0.3 percentage points from GDP growth. Strong international demand for commodities like iron ore and coal drove the run down in mining inventories, while a reduced grain harvest resulted in a run down in wholesale inventories. 

The fall in goods imports also contributed to the fall in wholesale and retail inventories as businesses did not replenish stock levels during the quarter.

Returned international demand for mining commodities drove the 9.2 per cent increase in mining profits this quarter, the first rise for this series since June 2022.

Household spending rose 0.1 per cent in the December quarter with increases across all essential categories.

“Households upped their spending on essential items like electricity, rent, food and health. Meanwhile they wound back spending in discretionary areas including hotels, cafes and restaurants, cigarettes and tobacco, new vehicle purchases and clothing and footwear,” Ms Keenan said.

The falls in household expenditure on discretionary categories was reflected by falls in the production activity of accommodation and food services (-3.2 per cent) and arts and recreation services (-0.8 per cent). Production in industries supplying essential goods and services rose including in health care and social assistance (0.5 per cent) and electricity, gas, water and waste services (0.9 per cent).

Compensation of employees rose 1.4 per cent in the December quarter and 8.4 per cent since December 2022. 

Public sector wages (3.3 per cent) drove this increase with new bargaining agreements, more employees and the Referendum on an Aboriginal and Torres Strait Islander Voice contributing to growth.  Private sector compensation of employees rose 0.9 per cent.

Following eight quarters of falls, the household saving to income ratio rose to 3.2 per cent, with income received by households outpacing their income paid.

“Compensation of employees and government payments were the drivers of the increase in income received by households in December. Government payments were raised with increases to the base rates of payments across a variety of benefits such as JobSeeker and youth allowance; an increase in commonwealth rent assistance; and the standard indexation of benefits that occurs in late September,” Ms Keenan said. 

The fall in income paid came from less income tax paid by households after an increase in the September quarter. Drivers for both quarters included changed timing of final tax return submissions compared to previous years. The recent increases in the level of income tax paid reflected the continued growth in compensation of employees and investment income. This growth has contributed to the 11.5 per cent increase in income tax payable across 2023.