Economic growth in Australia slowed during the third quarter of 2024, as persistently high borrowing costs and sticky inflation continued to weigh on the nation’s economy. According to data released on Wednesday by the Australian Bureau of Statistics (ABS), the real gross domestic product (GDP) expanded by only 0.3% over the three months ending in September. This marginal growth follows a 0.2% gain in the previous quarter, underscoring a continued trend of sluggish economic expansion.
The result not only marks a tepid improvement from Q2 but also falls short of the Reuters forecast of 0.4% growth. On an annualised basis, the economy grew by 0.8%—again missing market expectations of 1.1%, following an annual growth rate of 1% in Q2.
This increasingly concerning trend reflects deeper economic challenges, as elevated interest rates and core inflation levels above target ranges place pressure on both households and businesses.
Borrowing Costs Continue to Squeeze the Economy
Australia’s slowing economic momentum follows two years of tightening monetary policy by the Reserve Bank of Australia (RBA). The central bank has executed a staggering 425 basis points in interest rate hikes since May 2022, bringing its benchmark cash rate to a 13-year high of 4.35%. These elevated borrowing costs have significantly curtailed consumer spending and investment activity across key sectors.
Despite their impact, the RBA has kept rates steady since the end of last year, holding its restrictive stance as it continues to monitor inflation trends. However, the high rate environment remains a key contributor to the economy’s subdued performance.
Inflation Trends Offer Mixed Signals
While headline consumer price inflation eased substantially to 2.8% in the third quarter—down from 6% earlier in the year—this moderation was largely aided by government energy bill rebates. Core inflation, which excludes volatile items such as electricity and automotive fuel, remained stubbornly high at 3.5%. This figure, though marking a two-year low, is still above the RBA’s target range of 2% to 3%.
RBA Governor Michele Bullock highlighted that core inflation remains “too high” and stressed the importance of monetary restrictions. The RBA aims for core inflation to settle closer to the midpoint of its target range, around 2.5%.
Governor Bullock also ruled out near-term interest rate cuts, reaffirming the bank’s commitment to maintaining restrictive monetary policy until there is clearer evidence of inflation consistently approaching target levels.
Policy Uncertainty Ahead of December Meeting
The RBA’s stance will be further tested at its upcoming monetary policy meeting on 10 December. While analysts largely expect the central bank to leave rates unchanged, the outlook remains clouded by ongoing inflation risks and the potential impacts of current policy settings.
With borrowing costs showing persistent effects on household spending and business activity, the broader economy faces the challenge of achieving growth while managing inflationary pressures.
Weaker Growth Reflects Broader Economic Headwinds
The third-quarter data reinforces fears that Australia’s economic recovery is faltering under the weight of rising costs and limited demand. Despite headline inflation moving closer to acceptable levels, the resilience of core inflation and cautious consumer confidence continue to dampen broader recovery efforts.
Businesses are grappling with sluggish demand, while households feel the squeeze of higher mortgage repayments and everyday costs—a direct result of the RBA’s prolonged tightening cycle.
Structured Reforms May Be Required
The ineffective balance of moderation in inflation and declining growth may highlight a structural problem within the Australian economy. Experts advise implementing fiscal initiatives focused on productivity and wage growth, alongside revised monetary measures, to ensure sustainable support.
Attention will likely turn to how the nation’s policymakers align monetary and fiscal strategies to restore economic momentum.
What Lies Ahead for Australia’s Economy?
The latest GDP data underscores the complexity of the Australian economic landscape, where progress against inflation risks stalling total growth. With Q4 underway, the RBA’s guidelines will likely depend heavily on shifts in core inflation, global economic trends, and the impact of US dollar strength on Australia’s export competitiveness.
Immediate challenges notwithstanding, more balanced policies and aligned fiscal measures will be essential if the economy is to emerge from its current stagnation.
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