Aussie economy has...stalled

GDP growth slows to a halt

Australia's GDP in current prices - or nominal terms - continued to grow to new highs in the March 2024 quarter, as one might have expected. 

The below graph tells an interesting story of the lockdowns, and subsequent reopening booms.

Over the year to March 2024, nominal GDP grew by about 3½ per cent.

This doesn't really tell the full story, though, because the recent 'economic growth' has really been driven by very high population growth and price inflation.

Although inflation thankfully slowed for a fifth consecutive quarter, consumer prices were still up by 1 per cent over the 3 months through March.

And, in fact, if you look at real GDP per capita, the economy has been effectively going backwards for nearly 18 months now, and declined by -1.3 per cent over the past year to March 2024.

This quarter, GDP grew by a paltry +0.1 per cent. largely due to businesses building up their inventories. 

Higher interest rates are quickly pulling the economy down close to a recession, and policy settings remain very contractionary as the household mortgage bill continues to climb.

Mortgage interest payable by households is still rising as more fixed rates mortgages reset to higher rates.

The ABS reported that the derived household saving ratio fell from 1.6 per cent to 0.9 per cent.

However, this a derived figure from national aggregates, and after accounting for additional super contributions and early mortgage repayments, I dare say a significant and growing proportion of households are running down their savings, or struggling to get by.

Overall, household savings over the past year have been the lowest since the global financial crisis in 2008. 

Overall, then, the economy has slowed significantly - and in per capita terms has been flat or going backwards for 18 months or more.

Mortgage rates are biting very hard with more mortgages resetting to higher rates, and many households are struggling to save under current settings. 

James Foster ran through the key details here.

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