The Australian economy expanded by 0.3% quarter-on-quarter (qoq) in Q3 2024, marking its 12th consecutive quarter of growth. However, this was below market expectations of 0.4% and highlighted a slower recovery compared to previous quarters. Over the past year, annual GDP growth was 0.8%, the weakest since Q4 2020, reflecting lingering challenges in the global and domestic economy. While some sectors, such as fixed investment and trade, contributed positively, others like household spending and inventories underperformed. These mixed results illustrate the economy’s complex dynamics in the face of ongoing uncertainty.

Fixed Investment Shows Strongest Growth in Five Quarters

One of the most positive developments in Q3 was the 1.5% rise in fixed investment, marking the sector’s strongest performance in five quarters. This growth contributed 0.4 percentage points (ppts) to GDP and was largely driven by record-breaking public investment, which surged by 6.3% after a decline of 1.1% in Q2. The rebound in public infrastructure projects and other government-backed initiatives played a crucial role in driving this improvement. Government spending, meanwhile, maintained steady growth at 1.4%, supported by extended social benefits provided to households. Together, these factors underscore the public sector’s vital role in sustaining economic activity.

Stagnant Household Spending Amid Rising Savings

Household spending remained flat in Q3, showing no growth after a 0.3% decline in Q2. This stagnation was partly due to a sharp drop in electricity spending, driven by government rebates, which offset gains in other spending categories. Despite the lack of growth in consumption, the household savings ratio increased significantly, rising to 3.2% from 2.4% in the previous quarter. This uptick in savings suggests that households are becoming more cautious, possibly in response to economic uncertainties such as rising living costs and global market volatility. The reluctance to spend could pose a challenge for future growth, given the crucial role of consumer spending in the economy.

Trade and Inventories: A Mixed Contribution to Growth

Trade provided a modest boost to GDP in Q3. Exports of goods and services grew by 0.2%, while imports fell by 0.3%, resulting in a net positive contribution of 0.1ppts to GDP. However, this was partially offset by a continued decline in inventories, which subtracted 0.4ppts from GDP for the second consecutive quarter. The persistent inventory drawdowns indicate that businesses are cautious about overstocking amid uncertain demand. While the trade sector offered some support, it was not enough to offset the drags from weaker household spending and inventory reductions.

Outlook: A Cautious Path Forward

Despite 12 consecutive quarters of growth, the Q3 results reveal that Australia’s economic recovery remains fragile. Strong performances in fixed investment and trade were tempered by flat household spending and declining inventories. The rise in the savings ratio further signals consumer caution, which could limit domestic demand in the coming quarters. As global economic conditions remain uncertain, the Australian economy may need continued public sector support and policy interventions to sustain growth.