Economy grows as businesses sink cash into the future

The Australian economy is making the switch from government life-support to being driven by the private sector, as cash is splashed on new machines and equipment that have helped lift the nation’s productivity performance to a three-year high.

As businesses ramp up investment in the building blocks for AI and IT, the Australian Bureau of Statistics reported that spending on new homes and renovations to existing properties also lifted in the three months to the end of September.

The economy expanded by a lower-than-expected 0.4 per cent in the quarter. It would have been much stronger but for businesses running down inventories which clipped half a percentage point from the overall result.

Through the past 12 months, the economy expanded by 2.1 per cent, the strongest result in two years.

Treasurer Jim Chalmers said that private demand had now contributed more to growth than the public sector for four consecutive quarters.

“Growth and private sector activity are picking up, unemployment is low, participation is high, more people are in jobs and real wages are growing,” he said.

“This is the only quarter on record where the economy has had annual growth above 2 per cent, the unemployment rate had a four in front of it and participation was more than two-thirds of the working age population.”

The economy has depended on the public sector for several years. Even in the September quarter, public investment lifted by 3 per cent and added 0.2 percentage points to the overall result, with most of this spending in renewable energy, water, telecommunications and rail transport projects.

But private investment added 0.5 percentage points after it grew by 2.9 per cent, the strongest result since early 2021. Business investment in machinery and equipment jumped by 7.6 per cent with much of that funnelled into data centres in NSW and Victoria.

Households, however, continue to face financial headwinds. Consumer spending on essentials such as banking services, electricity and health, lifted by 1 per cent while expenditure on discretionary goods fell by 0.2 per cent.

In another positive sign, productivity growth lifted to 0.8 per cent through the past year, the strongest rate in more than three years. Productivity has now been positive for the past four quarters, the first time since the depths of the Covid pandemic when the jobless rate lifted.

Productivity is now growing faster than its decade-long average and above the Reserve Bank’s recently downwardly revised assumption.

AMP economists Diana Mousina and My Bui said the lift in productivity was much needed.

“An improvement to productivity growth shows that the supply side of the economy is rising and improving, which will allow the economy to grow at a stronger pace without lifting inflation,” they said.

Shadow treasurer Ted O’Brien said the figures showed the economy was continuing to languish, arguing that living standards were continuing to flatline.

“That an economy this weak is generating rising inflation – set to remain above the RBA’s target for at least the next two years – speaks volumes about Labor’s ongoing failure to stop its spending spree and start growing the economic pie,” he said.

The figures were released after Reserve Bank governor Michele Bullock admitted to a Senate committee that the institution had not brought inflation back to a sustainable level.

“Have we done it yet? No, we haven’t done it yet. So we need to keep working on this,” she said.

Bullock pushed back at suggestions the bank had failed in an “experiment” to bring inflation down while protecting the jobs market, but noted that if price pressures remained elevated then that would have “implications for the future path of monetary policy”.

The Commonwealth Bank’s head of Australian economics, Belinda Allen, noted that just a year ago the economy was barely growing. But now households were spending due in part to strong income growth, businesses were investing and residential construction was improving.

“But this cyclical upswing in the economy has seen spare capacity in the economy largely absorbed and the economy broadly at balance. With growth now running at 2.1 per cent a year, we see the Australian economy as largely reaching its speed limit,” she said.

At the state level, spending in NSW lifted by 1.4 per cent while it was up by 1.3 per cent in Victoria and 1.5 per cent in Queensland. Each recorded a lift in private capital spending of more than 3 per cent through the quarter.

NSW Treasurer Daniel Mookhey said the figures highlighted the importance of the state to the national economy.

“It’s pleasing to see private investment on the rise as NSW plays a leading part in this national growth story. When NSW does well, so does the rest of Australia and the latest national accounts figures bear that out,” he said.

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