Australia’s private sector is picking up the slack from weaker government spending but the nation’s economy is still expected to remain sluggish.
Forecasters revised down their predictions for Australia’s GDP growth in the June quarter, set to be released by the Australian Bureau of Statistics on Wednesday, after disappointing partial figures released the day before.
After higher government spending propped up economic growth in recent years, falling public investment is now acting as a drag for GDP growth.
Instead, the private sector was expected to be the primary driver of growth, Treasurer Jim Chalmers says.
“Tomorrow, we get the national accounts for the June quarter, and that quarter was defined by extreme volatility on markets because of announcements about tariffs out of DC,” he told parliament on Tuesday.
“Growth is not as strong as we would like, but continuous economic growth in the circumstances we see around the world over the past three years is welcome.”
Public demand fell 0.4 per cent over the quarter, providing no addition to GDP growth, while net exports only added 0.1 percentage point.
While the economy is expected to show an acceleration in annual terms from the 1.3 per cent growth recorded in March, without a material pick-up, unemployment is likely to rise in the near term, Westpac senior economist Pat Bustamante said.
“Australia’s underlying growth impulse remains sluggish and unconvincing,” he said.
As the economy rebalances towards the more capital-intensive private sector driving growth rather than the more labour-intensive public sector, the risks for employment growth will be further exacerbated, Mr Bustamante added.
RBC Capital Markets macro strategist Robert Thompson revised down his estimate for quarterly growth from 0.7 to 0.5 per cent,
Although Australian households have been a little reluctant to spend big, the consumer recovery is expected to be a key component in the overall private sector pick-up, Mr Thompson said .
“What’s more interesting, despite an only modest overall pick-up in activity, is the shifting composition of demand from public driving growth to private.
“We expect private household consumption to have underpinned activity in the quarter with a marginal contribution from business and dwelling investment.
“This skew toward private sector activity is encouraging and will be welcomed by the RBA.”
If Mr Thompson’s forecast comes to pass, it would correspond with a rise of 1.6 per cent over 12 months, in line with Reserve Bank forecasts.
But economists at ANZ, JP Morgan and Nomura predicted an annual rise of just 1.5 per cent.
Economic growth below the two per cent per year trend and modest wage growth could add to expectations of further RBA rate cuts ahead, said Nomura analysts Andrew Ticehurst and David Seif.
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