By MILLIE MUROI, Economics Writer
In the goldmine of numbers unearthed this week, we learned a lot of things. Among them: that gold diggers (not those ones) stepped up while the government stepped back.
Treasurer Jim Chalmers celebrated, declaring like a proud dad that he had deflated the fiscal floaties on our economy. The private sector is now “doing the heavy lifting” he said: in other words, private businesses and households are now swimming rather than sinking.
Now, the gold producers are a bit of a special case. While uncertainty – driven by the volatility in the world at the moment – hurts most businesses, those dishing out gold (or digging it up) tend to do well. Why? Because when people get scared, they gravitate towards gold, driving up its value
Our economic growth – in real gross domestic product (GDP) – came in more sluggish than expected by many economists, at 0.2 per cent. And while the “national accounts” for the March quarter seem to mark a turning point in some ways, they don’t factor in the wrecking ball (also known as Donald Trump) which largely swung into action in April.
Nonetheless, there are some nuggets of hope to sift out from the figures.
First, the government is no longer the star player on the economic pitch. Over the past two years, public spending on everything from infrastructure to electricity bill relief has kept the economy from grinding backwards (sometimes going forward by as little as 0.1 per cent).
That’s not the case any more – or at least, our politicians aren’t propping up the economy to the same degree they have been.
The federal government still spent a bit more in the three months to March than it did in the previous three months. But the growth in its spending was slower, as its outlays on social benefits programs such as Medicare and the National Disability Insurance Scheme dropped.
State governments, meanwhile, actually reduced spending in the first three months of the year, with most winding back energy bill relief as cost of living pressures have eased.
Some of the pullback in spending growth – especially nationally – is probably thanks to the budget’s “automatic stabilisers”: government payments such as unemployment benefits which naturally fall as the economy improves (and rise when the economy is in the doldrums and people are losing their jobs).
But the flat government day-to-day spending and fall in government investment spending (partly due to the completion of projects such as Sydney’s metro) certainly seem to suggest they’ve become happier to sit on the bench and let private businesses and households make more of the runs. This fall in public demand ended up subtracting the most from overall quarterly growth since 2017.
The overall picture is also a bit murky after quarterly growth in the economy slowed to the lowest rate since March last year. And GDP per person – generally a better measure of our living standards than total national GDP – slipped 0.2 per cent in the March quarter.
While it’s welcome news that private businesses and households seem to be regaining some of their gusto, neither were close to shooting the lights out.
Household spending is one of the most hotly anticipated pieces of the puzzle because Australian households' spending accounts for more than half of the country’s GDP. That means what consumers choose to do has an outsized effect on our economy.
Turns out we went more gangbusters on holiday sales last year than economists were expecting, but then decided (perhaps as our New Year’s resolutions) to rein in our spending.
We still splurged on big events including going to see artists such as Billie Eilish. And a warmer-than-expected summer (as well as the pullback in energy bill relief) meant that – whether we liked it or not – we had to splash more cash on keeping ourselves cool. That all contributed to household spending climbing 0.4 per cent.
But when it came to spending that isn’t strictly necessary, our purse strings tightened a bit, suggesting we’re still treading cautiously.
Partly thanks to Donald Trump’s unpredictability spooking us, we decided to squirrel away a bigger chunk of our income – even though we were generally earning more – in the March quarter. In fact, the saving ratio (which measures the proportion of our disposable income we stow away for a rainy day) climbed from 3.9 per cent to 5.2 per cent: the highest it’s been since 2022.
Another factor feeding into that higher saving ratio was Ex-Tropical Cyclone Alfred in Queensland which led to the government (and insurance companies) paying out to those affected – who in turn, ended up stashing a good portion of it away.
Investment by the private sector took the podium when it came to the part of GDP with the strongest growth, rising 0.7 per cent in the March quarter. That was largely thanks to a stronger appetite for investment in dwellings, including building houses and making renovations, perhaps helped along by the first cut to interest rates in nearly four years.
Businesses were also eager to sink money into manufacturing projects and more digging – not just for gold but for other minerals, too – contributing to the growth in private investment.
Net trade – exports minus imports – meanwhile, weighed down our overall growth, wiping 0.1 percentage point from the March quarter. While both imports and exports fell, the drop in exports was bigger. Production and shipments of coal and liquefied natural gas were disrupted by severe weather which, together with subdued growth in the number of international students and less spending per student, drove down Australia’s exports.
The implications of all this data for the Reserve Bank – and thus for all of us – is not immediately clear. The national accounts are always a delayed set of data (a good deal can change in the following three months), and there are signs of both continued weakness and of renewed strength in the economy.
The step back in public spending will probably make it easier for the Reserve Bank to drive forward with another rate cut next month – especially given it was close to slashing rates by 50 basis points at the last meeting, price pressures seem to have faded into the background, and growth is crawling along at snail’s pace.
With unemployment laying low, the inflation dragon tamed, and the private sector stepping up, there are glimmers of hope that Chalmers and the RBA have struck gold in our economic management. Now it’s about safeguarding the spoils by pulling up productivity and getting economic growth well off the ground.
