There were early signs that the March GDP figures were not going to be good.
To start with, the Bureau of Statistics’ newmeasure of household spendingthat covers about two-thirds of all household spending had already revealed that spending for the quarter was flat compared with a 1.6% jump in December quarter last year. So household spending was worse.
Then last week theprivate capital expenditure figuresrevealed a 0.1% fall in investment in buildings and engineering, compared with a 0.2% rise in the December 2024 quarter. So private investment was worse.
On Tuesday,the balance of paymentsrevealed that trade in the first three months of this year was expected to “detract 0.1%pts from the March quarter” compared with adding 0.2%pts in December. So trade was worse.
Just to top it off, on Tuesday the figuresfor government spending and investmentshowed that public demand fell in the March quarter and would also detract 0.1%pts from GDP growth compared with it adding 0.2%pts to GDP growth last December. So the impact of the public sector was worse.
To be honest, once you take away households, private investment, trade and government spending, you really are not left with much.
So it came to be.
In theMarch quarter of this year, GDP growthwas just 0.2%, down from 0.6% in the December quarter. The only good news is the March quarter last year was pretty dire as well, so all up it meant annual growth remained steady at a still extremely weak 1.3%.
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This weak growth meant that per capita GDP fell again – the ninth quarter out of the past 11.
This is not a good state of affairs, and certainly does not accord with the views ofthe Reserve Bank back in Aprilwhen it looked at the first three months of this year and suggested that “the limited information available about activity in early 2025 suggested that the pick-up in GDP growth had been sustained”.
Ahh well, at least they can say they were not wrong for long?
Well no. In theminutes of the May board meetingreleased this week the RBA now suggested that “GDP growth had increased in the December quarter 2024 and year-ended growth looked to have picked up a little further in the March quarter”. Going from 1.3% growth in December to 1.3% growth in March is hardly “picked up”.
The MayStatement on Monetary Policyalso predicted annual GDP growth in June of 1.8%. To get to that level, the economy would need to grow in April, May and June by 0.7% – the strongest quarter growth for three years. Here’s hoping …
So what drove the growth that was there?
Households were the biggest contributor to growth – although as in all things the context is key. Their contribution to the growth of the economy in the March quarter was about half what you would normally expect.
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And a big reason for the increase in consumption was a jump in spending on electricity, gas and other fuels – due to the ending of some of the state government energy rebates (which also had an impact on inflation). That is not the type of spending you want to see driving households.
All up the level of household consumption is well down on what would have been expected before the pandemic. The Reserve Bank’s interest rate rises did their job – they snuffed out spending. Clearly more rate cuts are needed to undo that damage and it is quite extraordinary that the RBA is so sanguine about it all:
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The overall level of household spending and private-sector investment quickly rules out the use of the phrase “strong” when searching for a term to describe what is going on:
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And that’s not surprising because while home loan rates have come down, the average discounted rate is still more than 300 basis point higher than it was at the start of 2022. But for small business owners taking out an overdraft loan, things are even worse – the rate is 400 basis point higher:
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But let us not be too negative. One very good piece of news is that household living standards are on the rise. After two years, finally household disposable income per capita is above the level it was in March 2020:
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One reason for this was there was a very slight decline in the level of mortgage repayments, due to the rate cut in February. This cut actually helped increased living standards in the first three months of this year. But that was a very small repair, given since March 2022 mortgage repayments have contributed about 63% of the fall in living standards:
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That’s a sizeable chunk and it reinforces the damage that is done when the RBA so badly misreads the economy as it has. These figures highlight that not only should the Reserve Bank have cut rates in April but having made that error it compounded it by not cutting rates by at least 50 basis points last month.
So far this year the RBA has kept misreading the economic situation and erred on the side of caution. Let us hope these weak figures spur it to cut rates when it meets next month and not suggest it still needs more time to see what is going on.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work