Economic activity increased 0.5 per cent in December quarter

Australia's Gross Domestic Product (GDP) rose 0.5 per cent in seasonally adjusted chain volume terms in the December quarter 2022 and by 2.7 per cent through the year, according to figures released by the Australian Bureau of Statistics (ABS) today. Although this is the fifth consecutive rise in quarterly GDP, growth slowed in each of the last two quarters. 

Katherine Keenan, ABS head of National Accounts, said final consumption and net trade were the major drivers of GDP growth.

"The 0.4 per cent rise in total consumption and 1.1 per cent rise in exports were the primary contributors to GDP growth in the December quarter. Continued growth in household and government spending drove the rise in consumption, while increased exports of travel services and continued overseas demand for coal and mineral ores drove exports," she said.

The GDP Implicit price deflator (IPD) rose 1.6 per cent in the December quarter and 9.1 per cent through the year. Domestic prices grew strongly, up 1.4 per cent for the quarter and 6.6 per cent through the year. This was the strongest through the year growth in domestic prices since the March quarter 1990.

The terms of trade rose 7.2 per cent through the year, driving real gross domestic income to 4.4 per cent through the year. This lifted the purchasing power generated by real GDP.

Household spending rose 0.3 per cent in the quarter, contributing 0.2 percentage points to GDP. Growth was driven by spending on Food (up 2.4 per cent), Hotels, cafes and restaurants (up 1.6 per cent) and Transport services (up 5.7 per cent).

"After four quarters of strong growth following the Delta-variant lockdowns, growth in household spending softened in the December quarter. Spending on discretionary services drove the rise in household consumption, however growth markedly slowed in comparison to the September quarter," Ms Keenan said.

Private gross fixed capital formation fell 1.7 per cent in the December quarter, following a 1.2 per cent rise in the previous quarter. Total dwellings fell 0.9 per cent with a 1.4 per cent rise in New and used dwellings being offset by a 4.2 per cent fall in Alterations and additions. This is the fifth consecutive fall for Alterations and additions, from record levels of activity in 2021 which was supported by HomeBuilder and similar incentives during the pandemic. Ownership transfer costs fell 6.2 per cent in December but remained above pre-pandemic levels. Declining property prices and rising interest rates have resulted in a drop in house sales and auction clearance rates.

Public capital formation fell 0.7 per cent in December following a fall of 3.5 per cent in September, however levels of investment remain elevated. 

Compensation of employees increased 2.1 per cent, following a rise of 3.2 per cent in the September quarter. The continued strength was underpinned by the tight labour market in the December quarter. The unemployment rate remained at historical lows, job vacancies were elevated and wage rates grew as competition continued for skilled workers. This quarter also saw the introduction of the Fair Work Commission’s 2021-22 minimum wage decision that impacted the aviation, tourism and hospitality industries, further contributing to growth.

The household saving to income ratio fell for the fifth consecutive quarter (from 7.1 per cent to 4.5 per cent). Gross disposable income fell in the December quarter as growth in total income payable outpaced the increase in total gross income. This was despite the strength in compensation of employees and interest received on deposits.

"The household saving ratio continued to decline in the December quarter, to the lowest level since September 2017. The fall was driven by increased interest payable on dwellings, income tax payable and increased spending," Ms Keenan said.

Net trade contributed 1.1 percentage points to GDP, as exports increased 1.1 per cent and imports fell 4.3 per cent.

Exports rose for the third consecutive quarter, driven by services exports, while goods fell. Services exports rose 9.8 per cent driven by Travel services (up 18.9 per cent) as international travel and tourism continued to recover. Exports of Travel services remained approximately 40 per cent below their pre-pandemic level compared to 50 per cent below in the September quarter. The fall in goods exports was driven by Non-monetary gold (down 23.7 per cent) and Rural goods (down 3.5 per cent). This was offset by increases in Coal (up 8.2 per cent) and Mineral ores (up 1.2 per cent).

Imports of goods dropped 3.8 per cent, driving the fall in total imports. Capital goods (down 5.3 per cent), Consumption goods (down 3.0 per cent) and Intermediate goods (down 2.4 per cent) all fell in December. Imports of services declined for the first time since September quarter 2021, with travel and transport related services driving the fall.

Changes in inventories recorded a build-up of $1.1 billion in December quarter, down from $3.9 billion in the September quarter, detracting 0.5 percentage points from GDP growth. Private non-farm inventories experienced a rundown with retail inventories declining, reflecting the fall in consumption goods imports. A draw down in inventories was also seen in coal mining in response to strong overseas demand and low production due to poor weather in parts of the country.