Australia's economic growth jumps to 3.4 per cent in the June quarter
Photo: Strong household spending helped drive GDP growth to its strongest outcome since September 2012. (Reuters: Daniel Munoz )
Australian economic growth has picked up pace, growing by 3.4 per cent in the year to the end of June fuelled by consumer spending and financed by shrinking household savings.
It is a step up from the 3.1 per cent year-on-year GDP growth in the Mar
ch quarter and above the 3 per cent the Reserve Bank had forecast.
It is also the fastest annual rate of growth since September 2012 during the height of the post-GFC mining boom.
However, the figure was flattered to a degree by a large downward revision of 2017 June quarter GDP (from 1 per cent to 0.7 per cent) which gave today's annual growth rate a handy head start.
In seasonally adjusted terms, the economy grew by a stronger-than-expected 0.9 per cent over the quarter, which was only marginally down on the strong and upwardly revised 1.1 per cent growth in the first three months of the year.
The household sector, which has been struggling under low wage growth and falling house prices, was the main contributor to the growth spurt.
It accounted for 0.4 percentage points, or just under half the quarter's growth, picking up the baton from the export sector, which supported the first quarter's strength.
"The continued decline in the household savings rate to just 1 per cent in the second quarter, a low since 2007, suggests that at least some expenditure may be occurring at the expense of savings," RBC's Su-Lin Ong said.
This time around, net exports contributed a more modest 0.2 percentage points. Residential construction was also another strong contributor.
"Growth in domestic demand accounts for over half the growth in GDP, and reflected strength in household expenditure," ABS chief economist Bruce Hockman said.
"Domestic demand increased 0.6 per cent for the quarter, driven by a 0.7 per cent growth in household consumption, with increased expenditure on both discretionary and non-discretionary goods and services."
Household consumption rose by 3 per cent over the year, while government consumption was stronger, up 5.1 per cent over the 2018 financial year.
"Public investment remained at elevated levels reflecting continued work on infrastructure projects across the nation," Mr Hockman added.
Fundamentals strong: Frydenberg
Federal Treasurer Josh Frydenberg said the outcome was stronger than the GDP growth figures that underpinned the budget.
"Nominal [non-inflation adjusted] GDP grew by 4.7 per cent on a year average basis. This was also above our budget forecast of 4.25 per cent as prices for key commodities have remained higher than we prudently assumed," Mr Fydenberg said.
"It is important to note that spending in 12 of the 17 consumption categories grew in the quarter, including in food, recreation, and culture, and shows that households are benefiting from recent strong jobs growth.
"Australia's economy is strong, the fundamentals are good, momentum is continuing and these are encouraging numbers."
Household savings paying for consumption
However, a deeper dive into the figures shows that the consumption boom has again been financed by households eating into their savings.
The household saving ratio has tumbled to its lowest level in more than a decade. Savings as a ratio of income was more than 10 per cent in 2008. That has crashed to 1 per cent this quarter.
Wages growth continued to soften, with the compensation of employees growing by 0.7 per cent over the quarter, down from 1.1 per cent in the previous quarter and half the rate of growth late last year.
Average compensation per employee — which takes population growth out of the equation — continues to be anaemic, down to 0.1 per cent over the quarter.
"This indicates growth in employees is outgrowing wage rates," the ABS said.
ALP treasury spokesman Jim Chalmers said the second quarter's growth would mean little to Australian households that have seen their living standards go backwards.
"For most Australians what's important is not a relatively strong GDP headline number, but stagnant wages and insecure work," Dr Chalmers said.
"Company profits have gone up more than five times faster than Australian wages."
Will GDP slow from here?
RBC's Su-Lin Ong said the RBA will welcome the figures.
"It will give them greater confidence in their key macro forecasts which imply above trend growth, strong labour market and march towards full employment and eventual lift in wages and inflation," Ms Ong said.
However, Ms Ong said early indications are that things may cool down in coming quarters.
"Indeed, July retail sales suggests household consumption has begun the third quarter on a subdued note, confidence is mixed, and the housing market has weakened further," she said
JP Morgan's Tom Kennedy said the RBA is unlikely to be too worried about growth throttling back a bit.
"Today's print is consistent with our view that real GDP in 2018 would be heavily front-loaded, with growth to moderate through the second half of 2018 on the back of fading net exports and softer household spending," he said.
"It also adds a little more credibility to the RBA's guidance that the 'next move in rates is up' and suggests the chances of a meaningfully dovish shift anytime soon remain small.
"The strong start to the year means growth can step down a touch without threatening the RBA's 3.25 per cent over the year December 2018 forecast."