The strong household consumption followed from an increase in spending on services. The share of discretionary spending increased through the quarter.
The household saving ratio declined from 11.1 per cent to 8.7 per cent, as the growth in household spending outpaced the rise in disposable income. This shows more willingness on the part of consumers to spend. Going forward, we expect that the household saving ratio will decline as cost of living pressures increase, including rising mortgage costs for those on variable rates.
Government reduced spending on health and flood relief
Government spending fell 0.8 per cent over the quarter, detracting 0.2 percentage points from growth. COVID-19 cases were lower (albeit COVID-19 hospitalisations were higher) and floods were less widespread than in the previous quarter, such that government spending on healthcare and disaster recovery payments declined. Defence spending also declined, after a strong March quarter due to assistance to flood affected communities, but it remains high by historical standards.
Public investment continues to rise
Public sector investment continued to strengthen with a 5.9 per cent rise, as federal and state and territory governments continued to invest in large infrastructure projects. Business investment fell by 1.5 per cent in the quarter, driven by falls in both residential and non-residential construction, as the sector struggles. The falls were somewhat offset by investment in machinery and equipment (up 4 per cent).
New capital expenditure (capex) data suggest the outlook for business investment is strong (with plans up over 11 per cent compared to the last estimate for FY23). This indicates a level of confidence in the private sector that demand will remain strong, despite capacity constraints. Higher costs would also be contributing to the upgrade in capex spending plans.
Dwelling investment fell as capacity constraints bite
Residential construction continued to drag on economic growth, as the sector struggled with labour and capacity constraints, as well as continued wet weather across the east coast.
The decline in dwelling investment was largely observed in investment in new dwellings, which fell by 3.8 per cent over the quarter. Alterations and additions also fell by 1.6 per cent to be 0.2 per cent lower than levels seen a year ago.
Rising interest rates are likely to have a significant impact on residential investment going forward. Not only do higher borrowing costs impact the cost to build a new home for both developers and individuals – further exacerbating input and labour price pressures – but rising interest rates are already impacting established house prices. Dwellings prices in Australia have fallen 3.6 per cent from their peak earlier this year, with house prices in Sydney leading the decline (falling by 8 per cent since their January peak).
Mining, services and rural exports support growth
Net exports contributed a strong 1.0 percentage point to the 3.6 per cent GDP growth. This was driven by a broad-based rise in exports, on the back of rural, mining and services exports.
Services exports recorded a double-digit jump as international student numbers picked up. This is the biggest rise since the September quarter 2000 (during the Sydney Olympics), albeit coming from a low level. Imports partly offset this with an increased number of Australians travelling overseas.
Non-monetary gold exports, which are known to be volatile, increased nearly 15 per cent. Oil and gas exports, coal exports and iron ore exports also saw solid increases in volume terms. In value terms, the story is even more positive with prices for coal exports increasing by more than 35 per cent, and oil and gas export prices seeing a double-digit increase.
Changes in inventories detracted 1.2 percentage points from growth after a strong March quarter.
Strong household consumption across the states and territories
State final demand rose in all states and territories apart from the Northern Territory.