Australia’s treasurer blames ‘challenging’ conditions for weak 1.4% GDP growth in year to June
Treasurer Josh Frydenberg has blamed “challenging” economic conditions for the country’s slowest growth in more than a decade, but says the fundamentals of the Australian economy remain strong.
New figures showed the economy grew by 1.4% in the year to June – the lowest recorded annual rate since 2009. In trend terms, it was the worst annual growth figure since March 2001.
But talking up the sluggish results, Frydenberg pointed to Australia’s 28 years of uninterrupted growth as a sign of the “resilience” of the economy.
“There is a challenging domestic and international economic environment, but … the fundamentals of the Australian economy are sound,” he said.
The treasurer also said he expected growth to pick up once the effect of the personal income tax cuts and the Reserve Bank’s interest rate cuts flowed through to the economy.
More than 5.5m individual 2019 income tax refunds have been paid out with a total value of more than $14.2bn.
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Frydenberg also flagged the government was currently negotiating a new agreement with the Reserve Bank that could “strengthen” the conditions around the bank’s inflation target of between 2% and 3%.
“We are in a new world with low interest rates, relatively low unemployment and low inflation.
“It is not going to be a radical change, but there is a discussion about maybe ways we can strengthen that agreement, strengthen that target, to ensure that we continue to see inflation where the Reserve Bank and the government want it to be.”
Labor’s shadow treasurer, Jim Chalmers, said the weak growth was the inevitable consequence of a “government with a political strategy but not an economic plan”.
“If the treasurer thinks that the slowest annual growth since the GFC is somehow a good outcome for Australia then he is from another planet,” Chalmers said.
Chalmers said the government needed to bring forward a budget update to revise their forecasts and stimulate the economy.
Frydenberg said a new government-backed incentive for business investment would not be delivered until next year’s budget.
Over the 2018-19 year, GDP per capita fell by 0.2%, the worst result since the global financial crisis, while car sales, dwelling investment, savings and productivity were all down.
On the upside, the national accounts showed mining investment grew by 2.4% in the quarter, with an increase in mining-related investment in machinery and equipment.
New non-mining business investment fell by 1.1% in the quarter.
The overall 1.4% growth figure was propped up by government spending, which accounted for 1.2 percentage points of the growth, attributed to disability and health funding, and drought and flood payments.
Across the board, growth is likely to remain subdued until the early 2020s, BIS Oxford Economics chief economist Sarah Hunter said.
“While there will be some support for households from the cash rate and tax cuts, weak income growth will fundamentally constrain spending in the near term,” she said.
“But the June quarter is likely to be the trough for the [annual] growth rate … as the very weak quarters from late 2018 and early 2019 drop out of the calculation.”
Frydenberg said that household consumption, which grew only 0.4% in the past quarter and accounts for about 60% of GDP, was “softer than we would like it to be”.
“Importantly, just to make the point on consumption, these numbers in the June quarter do not have the benefits of the tax cuts or the full flow-through from the interest rate cuts,” he said.
The treasurer also indicated the budget was already in surplus, and said nominal GDP, which grew by 1.2% in the quarter and 5.3% for the year, was stronger than expected.
“Nominal GDP is a reflection of the terms of trade story and will be very key in determining budget outcomes,” Frydenberg said.
He said the government would also deliver a “major improvement” on the $4.2bn deficit estimated for the 2018-19 year at budget time.
On Tuesday, the first trade surplus in 44 years was recorded on the back of strong exports of coal, iron ore and liquid natural gas.
The Business Council of Australia, which said the set of figures were a “wake-up call”, called for the government to follow up the personal income tax cuts with other measures to drive business investment.
“Australia was in a “low-productivity, low-growth rut, which is holding our economy back from delivering higher wages growth and improved living standards for all Australians,” the Business Council chief executive, Jennifer Westacott, said.
The Australian Council of Trade Unions secretary, Sally McManus, said the low wage growth and consumption figures showed that “working people no longer have anything to spend on non-essential items”.
“This government cannot restart the economy because it is the reason it has stalled. The policies of this government are directly to blame for the Australian economy slowing to a crawl.”
But amid the widespread concern at the result, Frydenberg hit out at Labor for its “high taxing” agenda, saying had they won the election, the result would be worse.
On Tuesday, the Reserve Bank, which kept the cash rate on hold at 1% on Tuesday, flagged the possibility of future rate cuts “if needed to support sustainable growth”.The RBA governor, Philip Lowe, said that the outlook for the global economy “remains reasonable”, but that the risks facing the economy were “tilted to the downside”.