Key points

• GDP rose by 0.3% q/q (0.8% y/y) in Q3, in line with our forecast but weaker than consensus (0.5%) and the RBA at ~0.4/0.5% q/q.
• Overall, growth remains very soft in annual terms and is still around its weakest (ex. COVID) since the early 1990s. Public sector spending remains an important support, with private sector growth flat.
• Abstracting from the impact of subsidies, consumption growth saw an improvement in the quarter, alongside the ongoing improvement in real income growth. Discretionary spending edged up after a large fall in the previous quarter.
• The household income account continues to show an easing in real income pressures with a further pickup in disposable income growth driven by tax cuts, an ongoing easing in inflation, and a waning drag from interest rates.
• The savings rate continued to recover and is now at 3.2% following historical revisions. At face value this suggests households, while stretched, may have not been as stretched as initially implied by the accounts.
• Productivity was again weak in the quarter, falling 0.5% to be down 0.8% over the year. Relatedly, unit labour costs growth continues to ease in y/y terms but remains elevated and inconsistent with at target inflation.
• There are few immediate implications for the RBA on these data. The headline growth figure was marginally below their implied forecast and highlights the risk of a slower pickup in consumption, but still weak productivity growth and strong unit labour costs growth point to the risk of ongoing elevated price/cost pressures. We continue to see the RBA on hold until May 2025.
• Today’s data are in line with our assessment that the economy is likely passing through the trough in growth with some early indications that the improvement in real income growth is supporting consumption. While quarterly productivity and unit labour costs growth can be volatile, the trend continues to point to the risk that the moderation in inflation will be very gradual from here.

For further details please see the Australian Economic Update – GDP Q3 2024