(Bloomberg) — Australia’s economy slowed more than expected last quarter as aggressive policy tightening weighed on household spending and construction, while accelerating labor costs underlined the nation’s inflation challenge.
The currency edged lower after gross domestic product advanced 0.2% from the prior quarter, the weakest three-month expansion since September 2021 and below a forecast 0.3% gain, data showed Wednesday. From a year earlier, the economy grew 2.3%, slowing from a downwardly revised 2.6%.
The result is unlikely to surprise Reserve Bank policy makers who forecast a substantial economic slowdown over the coming year. But an acceleration in labor costs will add to worries that price pressures are set to be prolonged even after 12 interest-rate increases since May 2022.
Employee compensation accelerated to 2.4% in the first three months of the year — the fastest pace since June 2007 — driven by the public sector and higher than usual end of year bonuses.
Unit labor costs, or the difference between nominal wages and productivity, jumped 7.9% from a year ago, prompting economists at Goldman Sachs Group Inc to raise their forecast peak rate to 4.85% from 4.35% previously.
That came just hours after Governor Philip Lowe highlighted a range of upside risks to the RBA’s inflation outlook, including recent wage outcomes and a rebound in house prices, saying the rate-setting board’s patience was being tested.
“Combined with today’s National Accounts data showing a surprise acceleration in unit labor costs, we now expect the RBA to hike 25-basis-points in July/August/September to a terminal rate of 4.85%,” Goldman’s Andrew Boak said. “We view the risks as skewed to a more elongated tightening cycle.”
Consumer spending growth outpaced the rise in gross disposable income, with the report showing the savings ratio fell to the lowest level in nearly 15 years, Katherine Keenan, ABS head of National Accounts, said in a statement.
Household spending advanced just 0.2% in the first quarter, adding 0.1 percentage point to growth.
“This was driven by higher income tax payable and interest payable on dwellings, and increased spending due to the rising cost of living pressures,” Keenan added.
The GDP data follow back-to-back unexpected RBA hikes that took the cash rate to 4.1%, its highest level since April 2012, threatening the central bank’s goal of a soft landing. Economists see a better than 1-in-3 chance of an Australian recession over the next 12 months as higher borrowing costs begin to crimp domestic consumption.
What Bloomberg Economics Says…
“Households are struggling — and we see no light at the end of the tunnel. We expect sluggish growth to continue through 2023 as tighter monetary policy works its way through the economy. A recession can’t be ruled out, despite the boost from strong population growth”
— James McIntyre, economist.
— To read the full note, click here
Central banks worldwide have been rapidly tightening policy in response to stubbornly strong inflation, even at the expense of slower growth and higher unemployment. The Federal Reserve is under pressure to keep raising rates as US consumer prices remain elevated, although it may skip at the June meeting.
For Australia’s center-left government, the GDP data mean it has to navigate rising consumer prices, higher borrowing costs and slower growth as it enters a second year in office.
“Rising interest rates are clearly biting,” Treasurer Jim Chalmers said after the release. “Households pulled back on discretionary spending to make room for the essentials in their household budget. Squeezing household budgets are weighing on economic growth more broadly.”
Today’s GDP report also showed:
Dwelling investment fell 1.2%, cutting 0.1 percentage point from GDP
Machinery and equipment investment surged 6%, adding 0.2 point
The household savings ratio fell further to 3.7% from 4.4%
–With assistance from Tomoko Sato.
(Adds comments from economists, Treasurer Jim Chalmers)
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
