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Economics update | 3 March 2023
03 Mar 2023
Economic growth slows in December
The ABS National Accounts data shows the Australian economy beginning to slow in response to high inflation, inflated energy prices and weakening international markets, with quarterly GDP growth of 0.5 per cent and annualised GDP growth of 2.7 per cent in December.
Much of the economic growth in the December quarter of 2022 was due to exceptionally high global commodity prices, with net exports contributing 1.1 per cent to GDP growth.
Household consumption also contributed to growth in the quarter, but has slowed considerably over the past 6 months, contributing 0.2 per cent to GDP growth in December compared to 0.6 per cent in June 2022. This suggests the Reserve Bank’s efforts to rein in inflation are starting to take effect, with consumers, particularly mortgage holders, starting to tighten their belt and reduce spending.
With around 20 per cent of mortgage holders expected to come off fixed rates onto higher variable rates in the next 12 months, we can expect household consumption continue to contract and be a major drag on economic activity in 2023.
Inflationary pressures remain the biggest challenge facing the Australian economy. The monthly inflation numbers were also released this week, with the consumer price index falling to 7.3 per cent in January from 8.1 per cent in December. While this suggests inflation may have peaked, inflation is still far too high. Forecasts indicate that inflation will decrease only slowly over the next two years, not returning to the Reserve Bank’s target range until mid-2025. The Reserve Bank has not ruled out further increase in the cash rate to put greater downward pressure on inflation.
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