Sequential growth edges up in Q3

Economy posts a softer-than-expected expansion: Economic growth remained sluggish in the third quarter, coming in at 0.3% on a seasonally adjusted quarter-on-quarter basis. The reading was better than the second quarter’s 0.2% print and marked a one-year high, but fell short of market expectations. On an annual basis, the economy expanded at a softer clip of 0.8% in Q3 compared to Q2's 1.0%, marking the softest expansion since Q4 2020 and likewise surprising markets to the downside.

Fixed investment lifts growth: Domestically, the quarterly uptick chiefly reflected a sharper increase in fixed investment, which rose 1.5% in sequential terms in Q3 (Q2: +0.2 qoq s.a.). In particular, rebounding public fixed investment outweighed softer momentum in private fixed investment. Less positively, household consumption stagnated quarter on quarter in Q3 after growing 0.3% in Q2, with a decline in spending on essentials offsetting an increase on spending on discretionary items; households likely continued to feel the pinch of tight borrowing conditions as the household savings ratio climbed to a nearly two-year high of 3.2%. Meanwhile, government expenditure was unchanged at Q2’s 1.4% in Q3. On the external front, net trade continued to contribute to overall growth. On the one hand, exports of goods and services increased 0.2% on a seasonally adjusted quarterly basis in the third quarter, which was below the second quarter's 0.6% expansion. On the other hand, imports of goods and services fell 0.3% in Q3 (Q2: +0.2% qoq s.a.), the sharpest drop since Q4 2023.

Growth to accelerate in the coming quarters: Our panelists expect the economy to be picking up pace in Q4, aided by returning momentum in private spending. Overall in 2025, our Consensus is for economic growth to accelerate after slowing in 2024 on the back of monetary policy easing and lower inflation. Faster momentum in exports, healthy population growth and sturdy global commodity demand will add impetus. The health of the Chinese economy is a key two-sided risk.

Panelist insight: Goldman Sachs analysts commented: “From our perspective, today’s National Accounts highlights that tight financial conditions are weighing heavily on the interest rate sensitive parts of the economy and broader inflationary pressures. We do not view the tailwind to growth from public demand as sustainable alongside legislated efforts to consolidate growth in public programs like the National Disability Insurance Scheme […]. [As a result,] we expect the RBA to adopt a more dovish tone at next week’s Board meeting. We continue to expect the RBA to commence a gradual easing cycle in February 2025.” Analysts at the EIU said: “We remain of the view that inflation will have slowed sufficiently by early 2025 for the RBA to begin to cut its policy rate. […] We continue to estimate economic growth in 2024 as a whole at 1.1%, while the start of interest-rate cuts, combined with further government spending, will enable an acceleration to 2.2% in 2025.”

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