Why a growing economy doesn’t signal a rate cut

Australian Bureau of Statistics (ABS) figures today show GDP rose 0.3% in the September quarter, signaling the twelfth consecutive quarter of growth for the economy.

July, August and September saw a boost from public sector spending, as well as government consumption and public investment.

The majority of Organisation for Economic Co-operation and Development countries have now recorded at least one negative quarter over the past 18 months, leaving Australia as an exception.

It sounds positive at face value, but REA Group senior economist Paul Ryan warned the overarching picture remains bleak.

"Data on the economy suggests productivity remains weak and tells a similar story to inflation data that prices are still rising uncomfortably quickly.

REA Group senior economist Paul Ryan says expectations for a rate cut will be pushed out while productivity is weak. Picture: Supplied

"This will continue to push out expectations for when the RBA will be able to lower interest rates."

Household income and spending patterns

ABS head of national accounts Katherine Keenan noted growth has slowed since last September, with GDP per capita having fallen for the seventh straight quarter.

Household spending was flat for the September quarter on the back of a fall recorded for April, May and June.

“The rebate-drive fall in household electricity spending was offset by growth in other categories,” Ms Keenan explained. “Clothing and footwear rose in response to unseasonably warm weather and essential spending grew moderately with continued growth in rent, health and education services.”

The household saving ratio rose 3.2% in the September quarter, which the ABS said resulted in gross disposable income rising by 1.5%.

Ms Keenan said the introduction of stage 3 tax cuts from the Treasury had also seen a fall in of 3.8% in the amount of income tax Australians paid between July and September.

“This also contributed to a rise in household gross income,” she added.

'Positive but weak'

Treasurer Jim Chalmers has labelled today's ABS figures "positive but weak", adding the economy continues to be "weighed down by interest rates, cost of living pressures and global uncertainty".

"The most important and most encouraging aspect of today’s data is the growth in real incomes, reflecting the combination of moderating inflation, solid wages growth and the government’s cost of living tax cuts," he said in a statement.

Treasurer Jim Chalmers says Australian households are continuing to struggle despite continued economic growth. Picture: News Corp Australia

"Today's data confirms the substantial progress we have made in the fight against inflation."

Mr Chalmers said the data also showed encouraging progress on investment in housing and business investment.

"[These are] two long-standing economic challenges that we are focused on," he said. "We've been planning and preparing for a soft landing, and with the economy still growing, inflation back in the band, unemployment in the 4s and more than a million new jobs created, we are on track for one."

Today's data comes as Reserve Bank of Australia prepares to meet at the start of next week to make its final decision on interest rates for 2024.

Rates have been held at 4.35% for the last 13 months, with cuts widely predicted to start from April or May.