Australia’s Gross Domestic Product (GDP) experienced a notable increase of 0.8 per cent in the December quarter, propelling annual growth to 2.6 per cent. According to IG market analyst Tony Sycamore, this figure surpassed expectations, yet it’s unlikely to immediately influence the Reserve Bank of Australia’s (RBA) monetary policy stance. The quarterly expansion marks an increase from the 0.4 per cent recorded in the third quarter. The RBA’s annual growth forecast published in its February statement on monetary policy was 2.3 per cent.
Despite the positive headline figures, Sycamore highlighted underlying weaknesses within the data. Household consumption saw a modest rise of just 0.3 per cent during the quarter, contributing a mere 0.1 percentage point to the overall GDP. Concurrently, the household saving ratio increased to 6.9 per cent, up from 6.1 per cent, marking its highest level since September 2022.
The rise in savings suggests that cost-of-living pressures continue to constrain household spending, with individuals prioritising savings over discretionary purchases. Sycamore indicated that the stronger GDP reduces the immediate pressure on the RBA to tighten monetary policy at its upcoming March meeting, especially considering the subdued consumption and elevated savings rates.
“Today’s numbers likely lean towards the RBA holding the cash rate steady at 4.35 per cent in March and waiting for the quarterly inflation data at the end of April,” Sycamore stated. He added that policymakers would remain vigilant regarding developments in the Middle East and the potential for an energy-driven supply shock to reignite inflationary pressures.
