Sluggish economy on life support as policy tightens

2 months ago 2

Per capita recession

A quick rip through the economy's national accounts for the June quarter in the customary 7 charts.

At the headline level, Australia's economy grew again, just (by +0.2 per cent)....but that's partly been due to high rates of population growth.

GDP per capita, on the other hand, has been going backwards for 18 months now.

Over the 2024 financial year, headline GDP was about +1 per cent higher, but GDP per capita fell by -1.5 per cent.

The difference between the two lines is accounted for by the blazing population growth rate of about 2½ per cent.

Productivity is really struggling in Australia - perhaps not surprising given the incredibly slow nature of the return to the office - and other income measures in the Aussie economy have fared relatively poorly (and will most likely continue to do so well into FY2025).

Households struggling

Alongside near-record population growth, there's been plenty of inflation around, and in current prices terms the economy expanded by nearly 4½ per cent over the financial year.

That said, most of the consumer price inflation is likely in the rear-view mirror now.

The household saving ratio - a derived figure - was estimated to be just +0.6 per cent over both the March and June 2024 quarters respectively.

These are evidently very low figures, and they conceal that many households have now completely depleted their pandemic period savings.

Indeed, after accounting for all super contributions and mortgage payments, in aggregate households are increasingly coming under a lot of pressure now.

Although the cash rate target has been steady for a while, monetary policy is still tightening the noose on households, as fixed rate mortgages continue to reset to higher interest rates.

It's little wonder household consumption is going backwards and we're facing down a retail recession.

Australia has had a decent tailwind from the terms of trade over recent times, but looking ahead it seems likely that this could become a nasty headwind over the next financial year.

Indeed, commodity prices are generally under pressure.

The price of copper has dropped by more than 20 per cent from the highs, iron ore is under significant pressure as China's property market is unwinding, and the oil price yesterday fell to under $70/barrel.

Australia's key commodity prices were down by about -7 per cent over the year to August 2024.

There aren't too many positives here, and only government spending is saving Australia from an outright recession (as it is, we only have a per capita recession).

The economy appears highly likely to need the support of lower interest rates in 2025.

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

Boom or Bust – 20 minute online workshop for investors

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

2. Download our property buying guide

Download our free property buying guide here.

You can also check out a few of our recent property investment purchases here.

Get in contact with us today if strategic property investment is your thing.

3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with well over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

4. Subscribe for my free daily blog

Subscribe for my free daily blog with some 3.7 million hits here.

You can also catch up with me daily on Twitter here, where I'm active daily and have over 14,400 followers.

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here.

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - follow our book release on Facebook here and at our Buy Right podcast series here.

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.