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Weaker than expected GDP means Australia faces strong headwinds in 2023

Weaker than expected quarterly GDP figures show Australia faces strong headwinds in order to maintain economic momentum in 2023.

“Amid challenging domestic and international economic conditions, the risks facing the Australian economy are mounting,” ACCI chief executive Andrew McKellar said.

“While productivity is improving, it remains well below what is needed to support economic growth through the uncertain period ahead.

“Businesses need policies that assist them to lift productive capacity through investment in skills, technology, and infrastructure. Government has a key role to play in addressing inflation to support business growth and job creation.

“The tightness in the labour market is now clearly feeding through to higher wages.  Businesses are delivering the strongest rate of wages growth since December 2006.  Compensation of employees in the private sector was up 3.4 per cent in the quarter, compared to just 2.4 per cent in the public sector.”

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Mr McKellar said it was important for the government to heed the Reserve Bank’s concerns over the risk of a wage-price spiral.

“Higher wages growth makes it all the more difficult to stop inflation from becoming entrenched. As such, the government must work as hard as it can to control prices.

“At the same time, business profitability is being squeezed, with gross operating profits falling 12.4 per cent during the September quarter.  Also concerning is the turnaround in business investment, with capital expenditure on plant and equipment falling 3 per cent.

“In particular, local manufacturers are bearing the brunt of increasing input costs and the ongoing shortage of labour. The sector’s contribution to GDP contracted 1.3 per cent in the September quarter, emphasising the need for a plan to address energy prices and supply.

“The early impact on consumers from rate rises is becoming more apparent with growth in household consumption settling back to 1.1 per cent in the third quarter.  Given we are yet to see the full effect of rate increases and more are likely in the new year, we anticipate growth in household spending will continue to decline.

“While still above pre-pandemic levels, the household savings ratio continues to decline dramatically, as the buffers built up through the pandemic are eaten away by rising costs.”

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