Economy falters as rattled consumers tighten belts

CreditorWatch expects increasing unemployment to prompt further tightening of belts among consumers. (Joel Carrett/AAP PHOTOS)

The Australian economy is already slowing down and there are more storm clouds on the horizon.

Interest rate rises, sky-high inflation and gloomy global conditions have been weighing on the economy and a fresh set of forward-looking data suggests the situation will only get worse.

The Westpac-Melbourne Institute leading index, which draws on a range of domestic and international data points to paint a picture of future economic growth, returned its 10th negative result in a row in May.

The six-month annualised growth rate in the index, which signals the likely pace of economic activity relative to trend three to nine months into the future, fell to negative 1.09 per cent in May from negative 0.78 per cent in April.

Westpac Group chief economist Bill Evans said this was the lowest growth rate result since the pandemic and added weight to the bank's recently downgraded forecasts for economic growth.

The bank's economists now think growth will slow to 0.6 per cent in 2023, down from one per cent predicted earlier. 

In 2024, growth is likely to pick up to one per cent, but this forecast has been revised down from 1.5 per cent.

"This weakness in the economy is centred around the consumer but also reflects a slowing global economy, a downturn in dwelling construction and a progressive weakening in the labour market," Mr Evans said.

Australia's economy is losing momentum, with quarterly growth pulling back to 0.2 per cent in the March quarter from 0.6 per cent in the three months to December.

The March quarter national accounts also revealed weakening household spending that was echoed in new Visa transaction data.

The firm's spending momentum index sunk 0.9 points to hit 98.8 in May, reversing an improvement over the month before.

All spending categories are now in contractionary territory - that is, below 100 per cent - aside from non-discretionary spending, or essentials.

At 101.5 index points, non-discretionary spending remains in expansive territory but it did fall 0.7 points over the month.

Discretionary spending contracted a further 0.2 points to 97.5.

These patterns are likely to continue as rising interest rates and red-hot inflation turn people away from restaurants and other non-essential spending in favour of cheaper alternatives, such as eating in.

While rising interest rates and high inflation are forcing consumers to cut back, higher earnings could help support consumer spending.

A dataset from the Australian Bureau of Statistics based on single touch payroll data shows wages and salaries paid by employers were up 9.3 per cent on April last year, or $7.7 billion.

But the measure of earnings fell 1.7 per cent from March, which ABS head of labour statistics Bjorn Jarvis said was likely because many sectors hand out bonuses in March.

Unlike the wage price index, which measures underlying movement in wages, the new earnings data set captures compositional changes in the labour market.

This includes switching jobs, taking on extra hours and bonuses and other additional payments.

License this article

What is AAPNews?

For the first time, Australian Associated Press is delivering news straight to the consumer.

No ads. No spin. News straight-up.

Not only do you get to enjoy high-quality news delivered straight to your desktop or device, you do so in the knowledge you are supporting media diversity in Australia.

AAP Is Australia’s only independent newswire service, free from political and commercial influence, producing fact-based public interest journalism across a range of topics including politics, courts, sport, finance and entertainment.

What is AAPNews?
The Morning Wire

Wake up to AAPNews’ morning news bulletin delivered straight to your inbox or mobile device, bringing you up to speed with all that has happened overnight at home and abroad, as well as setting you up what the day has in store.

AAPNews Morning Wire
AAPNews Breaking News
Breaking News

Be the first to know when major breaking news happens.


Notifications will be sent to your device whenever a big story breaks, ensuring you are never in the dark when the talking points happen.

Focused Content

Enjoy the best of AAP’s specialised Topics in Focus. AAP has reporters dedicated to bringing you hard news and feature content across a range of specialised topics including Environment, Agriculture, Future Economies, Arts and Refugee Issues.

AAPNews Focussed Content
Subscription Plans

Choose the plan that best fits your needs. AAPNews offers two basic subscriptions, all billed monthly.

Once you sign up, you will have seven days to test out the service before being billed.

AAPNews Full Access Plan
Full Access
AU$10
  • Enjoy all that AAPNews has to offer
  • Access to breaking news notifications and bulletins
  • Includes access to all AAPNews’ specialised topics
Join Now
AAPNews Student Access Plan
Student Access
AU$5
  • Gain access via a verified student email account
  • Enjoy all the benefits of the ‘Full Access’ plan at a reduced rate
  • Subscription renews each month
Join Now
AAPNews Annual Access Plan
Annual Access
AU$99
  • All the benefits of the 'Full Access' subscription at a discounted rate
  • Subscription automatically renews after 12 months
Join Now

AAPNews also offers enterprise deals for businesses so you can provide an AAPNews account for your team, organisation or customers. Click here to contact AAP to sign-up your business today.

SEVEN DAYS FREE
Download the app
Download AAPNews on the App StoreDownload AAPNews on the Google Play Store