Australian economy: New GDP figures reveal we’re no longer in recession

For the first time in two years, Australia is no longer in a per capita recession.

Official figures released by the Bureau of Statistics revealed the economy grew by 0.6 per cent in the final quarter of 2024, bringing the annual growth rate to 1.3 per cent.

On a per capita basis, GDP is now growing at 0.1 per cent, the first increase after seven successive quarters of declines, while the quarterly GDP growth of 0.6 per cent is the strongest showing in more than two years.

Treasurer Jim Chalmers said it was “more evidence our economy has turned a corner”.

“This is looking more and more like the soft landing we have been planning and preparing for,” Dr Chalmers said.

“Inflation is down, incomes are strengthening, unemployment is very low, interest rates are coming down and now growth is picking up as well.”

The ABS said both public and private expenditure contributed to the growth, supported by an increase in exports of goods and services, which were boosted by a stimulus-induced rise in exports of iron ore to China alongside strong demand for liquid natural gas and agricultural goods.

Government spending continues to do the heavy lifting in the economy, surpassing the the public sector to record 27.5 per cent of GDP, beating the previous record high in the third quarter of last year.

While growing at half the rate of the previous two quarters, state and federal consumption continued to expand, growing 0.7 per cent due to cost of living support, public sector wages and the expansion of health, child and aged care.

Federal polices supporting the care economy, such as wage rises for aged care and child care workers, are flowing through to States which have now recorded a 5 per cent growth in outlays for the 2024 calendar year.

“Strength in hiring across the health, education, policing, and environment agencies” at the local and state level was the “largest contributor” to total government expenditure, the ABS said.

Public infrastructure expenditure also grew by 1.8 per cent for the quarter due to state investment in public transport, roads, water and renewable energy as well as Commonwealth spending on telecommunications and power generation.

The ABS also revised up infrastructure expenditure for the previous quarter from 6.3 per cent to 8 per cent, adding to an unusually large quarter of spending driven by imports of defence equipment and investment in hospital and road projects.

Deloitte Access Economics partner Stephen Smith said while the signs of growth in household consumption was positive, government spending was still doing the heavy lifting.

“We are still reliant on public spending, we need private activity to play a larger role,” Mr Smith said.

“We can’t continue to rely on public spending to prop up economic activity and need policy changes to encourage investment including substantial tax reform, changes in competition policy and greater incentives to invest and start a business.”

Private sector shows signs of life

The private sector recorded a rise of 0.3 per cent after two quarters of zero growth but continues to decline on a per capita basis given population growth of 2.2 per cent.

Household consumption was, however a bright spot, growing by 0.4 per cent for the quarter, as consumers snapped up Black Friday discounts. Spending was supported by a 2 per cent increase in wage income and a reduction in taxes. A rise in the household savings rate to 3.8 per cent from 3.6 per cent, however suggests that cautious consumers are still banking savings.

“Given population growth, the boost to household spending is far from impressive, but given recent headwinds, the shift in consumer behaviour is notable,” said Indeed APAC economist Callam Pickering

“It indicates that Australian households aren’t quite as stretched financially as they used to be, at least not collectively. A full recovery from the recent cost-of-living crisis may take 5 to 10 years, but the December quarter marked the first step.”

Business investment also rose slightly, up 0.3 per cent due to mining and renewable projects. The growth in that sector was offset by a decline in dwelling investment due to a pull-back in renovations.

Business profits also rebounded after 18 months of contraction, led by the mining sector which rising iron price as a result of Chinese stimulus, while the transport and financial sector also enjoyed profit rises.

Australian Chamber of Commerce and Industry chief executive, Andrew McKellar said the improved outlook for business was a welcome development but more confidence was needed, warning that the stagnant level of investment in plant and equipment indicated businesses remain wary of future conditions.

“Thanks to growth in household consumption, private demand has made a significant contribution to economic growth,” Mr McKellar said.

“Exports have seen an increase and after a lacklustre couple of quarters private investment is also up, so most of the signs point to an economy that is on the improve and we welcome that.”

The GDP figures will be closely watched by the Reserve Bank, who reiterated this week that the decision to cut rates was hotly contested and warned the market that it was too optimistic on further rate cuts.

Speaking at a business function this morning, RBA deputy governor Andrew Hauser said the “extraordinarily strong” growth in employment was a key area of focus and the Board was struggling to determine whether such a strong labour market would be inflationary in a period of low growth.

“While the recent strength in employment growth is welcome, it’s also unusual after a period of such subdued GDP growth. The question is what it means for the margin of spare capacity in the economy, and hence for the inflation outlook,” Mr Hauser said.

One of the RBA’s concerns would be the continuing low level of productivity, which the ABS data showed declined by 1.2 per cent in terms of GDP per hours worked. Productivity in the workforce is a key determinant of the RBA’s inflation outlook.

“Australian workers are no more productive today than they were nine-years ago,” Mr Pickering said. “Australia’s dismal productivity performance is a major economic problem and one that few people are talking about.”

National Australia Bank said it did not expect today’s data to change the outlook on interest rates, and forecast the economy should return to trend growth of 2.25 per cent by the end of the year.

The bank said it was still forecasting a rate cut in May and interest rates to fall to 3.1 per cent next year.