Australia’s Economy Barely Grows Amid High Rates and Inflation. Australia’s economy barely registered growth in the first quarter, hindered by high interest rates and persistent inflation pressures. The Australian Bureau of Statistics reported Wednesday that the economy grew by just 0.1% on-quarter and 1.1% on-year, falling short of the consensus expectations of 0.2% and 1.2%, respectively.
The slowdown was primarily driven by weak retail spending as household budgets remained under stress. Since May 2022, the Reserve Bank of Australia (RBA) has implemented 13 interest rate hikes, and critical areas like rents and electricity prices continue to rise quickly. This financial strain has significantly impacted consumer spending and overall economic activity.
However, relief is on the horizon. The government is set to deliver income tax cuts from July 1. The recent budget for 2024-25 also includes cash handouts for households and rebates to offset soaring electricity costs and rising rents due to a housing shortage. Additionally, the minimum wage will increase by 3.75% from July 1, providing some financial relief to around 25% of all workers. Australia’s Economy Barely Grows Amid High Rates and Inflation.
Despite the sluggish growth, areas of strength persist in the economy. House prices remain on an upward trajectory, and unemployment is low by historical standards, although it is expected to rise by the end of the year. The weak growth diminishes the case for further interest rate hikes by the RBA, but policymakers remain vigilant as inflation has risen slightly in recent months. In May, RBA Governor Michele Bullock mentioned that an interest rate rise was discussed but ultimately decided against fine-tuning policy settings.
