Published: Wed, December 06, 2017
Finance | By Loren Pratt

WA economy on the mend

WA economy on the mend

Australia's economy grew at a slower pace than expected in the third quarter, feeding into economists' concerns about a lopsided expansion as businesses chalk up strong profits while consumers keep their wallets tightly closed.

Australia's economy is growing at an annual rate of 2.8% after a solid pick-up in private investment in the September quarter.

Economists surveyed by Reuters had typically economic growth of 0.7 per cent in the September quarter and 3 per cent over the past year.

Analysts noted the economy would have to expand by a strong 0.9 percent this quarter, if annual growth was not to slow again.

Treasurer Scott Morrison said public investment was strong on an annual basis.

"This is above the OECD average and puts Australia back up towards the top of the pack for major advanced economies around the world", Mr Morrison told reporters in Canberra today.

Aussies were cutting back spending on household furnishings and equipment, hotels, cafes and restaurants, clothing and footwear and buying new cars.

Some of that spending had to be funded by saving less, with the savings ratio down at a lowly 3.2 percent compared to around 7 percent just three years ago.

The biggest fall in the September quarter was in agriculture, forestry and fishing, which declined by 4.1 per cent. Average labour earnings increased by just 0.3% in the quarter and 0.6% over the year, and household disposable income rose by just 0.5% and 1.8% over the year, barely above the rate of inflation.

"The big concern is whether households, the engine of the economy, accept that expectations of a lift in wages growth are unjustified and it becomes necessary to adjust spending to a lower income outlook".

"If you can't get a stronger consumer, it's pretty hard to get momentum going in GDP", said Su-Lin Ong, Sydney-based chief economist at RBC Capital. "We believe it will", said Paul Dales, chief economist at Capital Economics.

This came despite compensation for employees increasing by 1.2 per cent for the quarter and 3.0 per cent over the past 12 months.

Growth in household spending is now at its lowest rate since the March quarter in 2005.

Morrison said the important thing to focus on was private investment, because its contribution to growth more than tripled in the quarter.

"We have now seen four consecutive quarters of investment growth, following 12 consecutive quarters of decline".

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