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Household savings battered as Australia's economy picks up, defying expectations

Peter Terlato avatar
Peter Terlato
- 3 min read
Household savings battered as Australia's economy picks up, defying expectations

The Australian Bureau of Statistics’ (ABS) latest National Accounts data reports Gross Domestic Product (GDP) rose 0.4% during the June quarter 2023, up 3.4% year-on-year.

These quarterly increases have been gradually losing steam since the middle of last year. GDP in the June quarter of 2022 rose 0.8% over the previous period, while it expanded just 0.6% in both the September and December quarters. The March quarter of 2023 saw an even more tepid increase of just 0.2% quarter-on-quarter.

However, this latest data reflects a mild upturn in Australia's economic position. The result also exceeded analysts' forecasts of a 0.3% increase in financial output for Q2 2023.

“This was the seventh straight rise in quarterly GDP, and annual growth remained above trend, reflecting the absence of COVID-19 disruptions, such as lockdowns, in 2022-23,” ABS head of national accounts Katherine Keenan said.

“Capital investment and exports of services were the main drivers of GDP growth this quarter.”

Household savings continue to contract

The household saving to income ratio fell for the seventh straight quarter to 3.2%, its lowest level since June 2008.

The household saving to income ratio is calculated by dividing household savings by household disposable income. A lower household saving ratio indicates that, generally, households are spending more and saving less.

The saving ratio has been on a downward trajectory since 2022, on the back of a slew of double rate hikes by the Reserve Bank of Australia (RBA) between June and September last year.

“The fall in the household saving ratio was driven by higher interest payable on dwellings, income tax payable and increased spending by households due to the rising cost of living pressures,” Ms Keenan said.

Household income saw a 1.8% uptick, with interest earnings and employee compensation the key driving factors.

Spending remains subdued, price growth stays steady

Household expenditure continued to show restraint, increasing by a mere 0.1% and contributing a similarly modest 0.1% to overall GDP growth.

Discretionary spending fell 0.5%, the third consecutive fall, while essential spending  rose 0.5% on the back of stronger demand for electricity, gas and other fuel needed for heating following a cooler than usual Autumn.

“Spending on essential goods and services were the main contributors to the rise in household spending, while many discretionary categories detracted. The exception was spending on vehicles which rose 5.8 percent as supply bottlenecks eased during the quarter,” Ms Keenan said.

Domestic price inflation held steady at 1.2%, propelled by increases in household rents, food prices, and capital goods, which surged as a result of the ongoing depreciation of the Australian dollar.

What’s next for the economy?

The RBA kept the cash rate on hold in September - at 4.10% - for the third consecutive month.

The Organisation for Economic Co-operation and Development (OECD) - of which Australia is one of 38 member countries - found GDP among the combined OECD nations rose by 0.4% quarter-on-quarter in Q2 2023, slightly down from 0.5% growth in the previous quarter, according to provisional estimates released this week.

While this data incorporates an array of vastly different economies and is not reflective of Australia’s individual situation, it does indicate that global GDP continues to trend downwards.

Although the global economy shows signs of stagnancy, this latest national accounts data highlights Australia’s economic resilience and is a positive indication that we may very well avoid a recession.

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Product database updated 22 Jun, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.