Key points

• GDP rose by 0.2% q/q (1.5% y/y). Private domestic demand growth remained weak, while public sector spending helped to keep overall domestic final demand growth over the last year at a reasonable level.
• Today’s result does not have large implications for the RBA and NAB continues to see the RBA on hold until November. While growth is below trend and progress is being made on reducing excess demand, household income outcomes suggest the RBA should be less concerned about downside risks to consumption.
• The key story remains the weakness in household consumption, which rose just 0.1% q/q and 0.1% for 2023 as a whole – the slowest annual growth in almost 40 years outside of COVID and the GFC. That said, real disposable income growth turned positive in the quarter as the drag from interest rates faded and tax collections declined (the latter due to timing changes).
• The other key private demand components were mixed. Dwelling investment fell significantly (albeit by slightly less than expected), while business investment held up despite the headwinds to aggregate demand. Public sector spending remains an important support.
• The set of price measures included in the accounts eased by less than CPI measures. They continue to show ongoing moderation in annual terms, but remained elevated.
• Productivity continued to rebound in the quarter with hours worked declining. We caution reading much into the productivity measures on a quarterly basis, beyond taking comfort that output per hour worked is no longer declining. How strong the underlying pace of productivity growth is remains uncertain.
• Encouragingly, nominal unit labour costs growth slowed with the improvement in productivity though this measure remains very high at face value.
• We see ongoing softness in Q1 2024 based on our internal transaction data and business survey. That said, we may be around the low point for quarterly growth with the pressures on household budgets likely to ease – especially in the second half of 2024.

For further details please see the NAB Australian Economic Update – GDP (Q4 2023)