Private sector slumps
Australia's per capita recession dragged on into a record seventh consecutive quarter in the three months through September 2024.
Headline GDP growth was once again remarkably weak at just 0.3 per cent.
In per capita terms, the economy has gone backwards by about -1½ per cent over the past year.
There was a brief period during the lockdowns when annual GDP growth per person was lower, but otherwise...oof.
Public investment soared by another 6.3 per cent over the quarter, to the highest level on record - largely driven by investment in roads, rail, renewables, and healthcare projects - thereby accounting for all of the anaemic growth in the economy, and in turn implying a chronically weak result for the private sector.
Wages growth slowed a little further, down to about 3½ per cent over the year, partly due to lower growth in pay awards from the Fair Work Commission this time around.
It appears that many households are looking to save - rather than spend - their tax cuts to build up some buffers against mortgage repayment pressures and/or potential shocks.
GDP per capita - while a measure which has some limitations as a proxy for living standards - now looks to have slowed to a little below the pre-pandemic trend (which itself was already only running at growth of around 1 per cent per annum, far below the long-run average rate of growth).
Nominal GDP has also stalled, as the commodity price tailwinds now become headwinds for Australia.
As growth in China's economy is hit by Trump's tariffs, it seems quite likely to me that Australia's terms of trade may continue to fall from their previously highly-elevated levels.
Finally, arguably the key variable in the economy over the past couple of years has been the steepling interest bill for mortgaged households, which has cut a huge chunk of consumer demand out of the economy.
Respite in 2025?
There may be some respite ahead, with OIS pricing moving towards favouring an initial interest rate cut by April, two cuts by July, and a total of three cuts in calendar year 2025.
A rate cut by February is also priced much closer to an each-way bet, though I wouldn't punt on that outcome myself.
The implied price deflator for the September quarter was just 0.1 per cent, and 0.7 per cent for household expenditure, suggesting that the battle against inflation continues to progress broadly in the right direction, even it's partly been funded by government subsidies.
Australia's 3-year government bond yield is trading at around 3.8 per cent this morning, well down from the recent highs of around 4¼ per cent.
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