Households struggle as Australia's economy hits the brakes

In the March quarter 2023, household spending moderated while the household savings ratio fell to 3.7%, its lowest level since June quarter 2008.

“This was driven by higher income tax payable and interest payable on dwellings, and increased spending due to the rising cost of living pressures,” Ms Keenan said.

Source: Australian National Accounts: National Income, Expenditure and Product, March 2023

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

The household saving ratio declined sharply between September (7.1%) and December (4.5%) 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 data release showed household spending rose around 0.2%, contributing 0.1% to the overall GDP result.

“Spending on essential goods and services were the main contributors to the rise in household spending, while discretionary categories such as furnishing and household equipment, purchase of vehicles and other goods and services all detracted from growth," according to Ms Keenan.

Services inflation grew as skilled labour shortages and a tight labour market placed upwards pressure on costs. Goods inflation moderated, causing domestic price growth to slow (1.1%) during the March quarter, following a healthier rise (1.4%) in the December quarter 2022.

The RBA has lifted the cash rate 12 times over the last 14 months - taking it to 4.10%, the highest it’s been in 11 years.

In terms of mortgages, this means that for someone with a $500,000 loan at the start of the central bank’s hiking cycle in May 2022, their total monthly loan repayments will have increased by $1,134.

The RBA lifted the cash rate by 0.25% to 4.10% this week - a situation borrowers most likely never expected to materialise during the life of their loan, let alone in the space of just over a year.

Further rate rises could see Australians dip deeper into their savings to help cover the cost of mortgage repayments.

The global economy is teetering on the brink of recession. China, the US and Europe are experiencing a significant slowdown in economic growth. Comparatively, Australia has been better positioned to weather the storm, but it’s likely there will be tougher times ahead. The nation’s economic outlook for the remainder of 2023 remains uncertain.

Most predictions anticipate a slowdown in Australia's economic growth - which we’re already witnessing - and concerns regarding inflation and declining housing investment are a consistent theme in most forward estimates.