(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)
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
