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Chapter 1: What is the main topic discussed in this episode?
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New data shows Australia's economy was already slowing in the first three months of the year before the full impact of a series of interest rate hikes and the war in the Middle East washed through. So what does it mean for the outlook for interest rates? And what will yesterday's wage hike from the Fair Work Commission mean for Australia's workers? Welcome to ABC Business Daily.
I'm Carrington Clarke.
And I'm ABC business reporter, Steph Chalmers.
Steph, so nice to see you on this GDP day. Now, GDP kind of has always been the gold standard when it comes to data about the health of the Australian economy.
I feel like in recent times, though, inflation has kind of taken centre stage, partly because inflationary pressures are the most important task or most difficult problem to solve for the Reserve Bank and for the government, but also because we're now getting monthly data. It's closer... to being real-time reality.
GDP, unfortunately, this data is only up until the end of March, so it's hopelessly out of date before we've even been able to have a proper look at it. What did you make of today's figures? Did it meet expectations? Was there anything particularly interesting for you?
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Chapter 2: What recent data indicates about Australia's economic slowdown?
So we've had quite a significant slowing from the end of last year to the start of this year.
There's that difficulty, isn't there, about is this good or bad news? And it kind of depends on what your perspective is at the moment. I was surprised. by the lack of consensus between economists. Even yesterday after we'd had kind of some of the detail already released preliminary about GDP, you saw this real divergence in the big four banks.
Their economists could not agree on what they thought was going to be shown in this data. The Commonwealth Bank expecting there'd be no growth at all, 0% for this quarter. On the other extreme, ANZ was suggesting it would be 0.5. Westpac and NAB got it right, 0.3, right in the middle there.
But that question about is this good news or is it bad news, yes, this is a dramatic slowing and all other things being equal, that would be a bad thing.
Chapter 3: How do interest rate hikes affect the economic outlook?
You want economic growth, economic growth, in theory, leads to higher well-being from people, gives people the capacity to buy more things.
Chapter 4: What impact does the Fair Work Commission's wage hike have on workers?
But the concern at the end of last year was we were already hitting constraints in the economy and that high, well, it's not even that high, right? But that relatively high economic growth was causing an outbreak of inflation that was difficult for the Reserve Bank to handle. So the fact that it has slowed down, on one hand, that means that we're going to have less growth.
As I said, that's normally considered to be a bad thing, but in this current environment, maybe that's good because it takes the heat off the reserve bank to hike rates even further to deal with inflationary pressure.
Yeah, as you say, we were kind of coming from quite a good starting point as well. So even though we're slowing down, the economy is obviously still expanding. How much longer that'll be the case on a quarterly basis, I guess, remains to be seen. So we often look at the annual pace of growth and it stayed steady at 2.5%, which was revised down.
But the Reserve Bank expects the economy to grow at just 1.6% by the end of June, which is only another quarter away. So if their forecasts are to be correct, we're going to slow much further before then and then even further by the end of December.
So it's got further to run and obviously it's kind of the elephant in the room that economists and the RBA never like to say, but I think in order for them to kind of achieve their aim of bringing inflation down, they will be, you know, by design trying to slow the economy and that could lead to more people losing their jobs as well, which we have seen
you know, the unemployment rate rise to, I think it was the highest in a couple of years. So we are kind of slowly moving in that direction that we inevitably have to go to kind of take some of the heat out, I think.
Yeah. And this question about the R word recession, the Commonwealth Bank in expecting that would be 0% growth this quarter effectively means you're flirting with recession, you know, a contraction in the economy.
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Chapter 5: What does GDP reveal about the health of the Australian economy?
That isn't what has occurred, but... Westpac, I think, is suggesting they think the next quarter could be negative. We could see a contraction. And then if you get two of those in a row, well, that's a technical recession. Now, there is a live question about are we already seeing some recessionary forces within the economy at the moment? There are reasons to think that might be the case.
And breaking down some of these numbers, it is interesting.
Chapter 6: How are inflationary pressures influencing economic growth?
On one hand, one of the positives was a big contribution to economic growth coming from business investment. Now that's surged 6.5%. That is the fastest rate of growth since the mining boom back in 2012. And it almost seems to be entirely driven by investment in data centers, which is linked, of course, to the artificial intelligence transformation.
A lot of money has been spent on getting these computer chips in place and the storage in place and connecting to the electricity grid. Although there's a real question about how much value add there is into the economy at the moment because these AI companies are massive. overseas enterprises.
But then we've also got household spending rising 0.5% in the quarter, but that's almost entirely driven by spending on essential goods and services. Very little in the way of discretionary spending increase, just 0.1%. Now, that might, again, indicate that the starter, again, is a little bit messy because it's until the end of March. We had an interest rate hike in February.
The war kicks off at the end of February. But the full impact, of course, of these interest rate rises hasn't been felt. The full impact of the extra inflationary pressures from the war hasn't been felt. But it seems like consumers were already starting to tighten their belts, weren't they?
Yeah, and it's kind of that first month where we had sort of the alarm bells ringing about fuel and a bit of that panic buying behaviour as well, but we didn't have the excise cut in effect. So that could play out in the next set of data as well.
But yeah, really, you know, still household consumption growing, but with inflation where it is, you'd have to say, you know, a lot of it is based on spending more on essentials. and things like that. And on the data center side, it was kind of a bit of a mixed impact because there was a 16% increase in machinery and equipment investment.
But then because a lot of things to load up these data centers with chips, et cetera, are imported, that actually detracts from our GDP. So that might be something that And Economist, the Reserve Bank, even though that was a drag in this quarter, that's to help us run these data centres going forward. So it's not like it's a bad thing for the economy that we're importing a lot of this stuff.
But in this quarter, it had a mixed impact on the outcome.
And one of the political debates this year has been around how important has public spending been in fueling the inflationary pressures in the economy. The government seems very happy that this time around, public final demand made almost no contribution to growth in the quarter. So just 0.1%, which was a major decrease from the previous quarter, which is 0.9%.
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