Australia’s economy has exceeded expectations in the second quarter. Data released by the Australian Bureau of Statistics revealed that real gross domestic product (GDP) grew by 0.4% in the second quarter, slightly surpassing forecasts of 0.3%. This growth followed an upwardly revised 0.4% expansion in the first quarter. On an annual basis, the economy posted a 2.1% growth rate, surpassing expectations of 1.8%. The surge in Australia’s economy was primarily driven by exports, investments, and public expenditure.
Notably, the return of students and tourists provided a boost to net exports. However, the economy faced headwinds from subdued household consumption, which recorded a mere 0.1% gain in the quarter. This was attributed to increased spending on essential goods and services as households grappled with the high cost of living and a substantial 11% rise in mortgage repayments during the quarter. Consequently, the savings ratio among consumers dropped to 3.2%, marking its lowest level since 2008. Despite the positive economic performance, challenges loom on the horizon. The Reserve Bank of Australia (RBA) recently left interest rates unchanged for the third consecutive month, citing encouraging signs of easing inflation and slowing economic growth.
While market sentiment suggests the RBA might refrain from further rate hikes, a majority of economists anticipate one more increase by year-end to combat inflationary pressures. Treasurer Jim Chalmers acknowledged the challenging environment but expressed optimism about the country’s economic future. However, the report indicated a decline in productivity, with one measure of GDP per hour worked falling by 2%, marking the third consecutive quarterly decline. Unit labor costs also continued to rise briskly, registering an annual growth rate of 7.2% in the quarter, posing ongoing concerns for the RBA.