Higher household spending has continued to drive economic growth, with Australia’s GDP rising for a fourth straight quarter.  

But could this be as good as it gets? 

The full impact of higher interest rates are yet to hit,property prices are falling,and there are early signs households are beginning to pull back.  

Here’s 5 things to know about Australia’s economy.   

1. Economy running at full steam – but that’s about to change 

Australia’s economy grew 0.6% in the September quarter, ABS data revealed on Wednesday, taking annual growth to 5.9%.

The result was driven by consumer spending with strong quarterly growth in dining out, travel and vehicle purchases -sectors that have benefited from the post-Covid reopening.

However, the GDP data is backward looking, with growth expected to slow significantly next year.

“Context is very important. Production and consumption over Q3 22 were barely impacted by the RBA’s rapid rate hikes,” CBA head of Australian economics Gareth Aird said.

The RBA has raised the cash rate for eight straight months, taking it to 3.1% in December.
“We expect momentum in the economy to slow materially from here as households and businesses adjust to higher interest rates,” Mr Aird said.

Economic growth is forecast to slow to around 1.5% in 2023 and 2024, according to the RBA.

 

2. Households are spending more and saving less 

Household savings surged to record levels during the pandemic, as lockdown restrictions and border closures limited the way people could spend their money.

But Wednesday’s National Accounts data showed the household saving rate has now returned to pre-pandemic levels. 

Households saved 6.9% of their income during the September quarter, compared to 6.8% in the December quarter 2019. 

AMP senior economist Diana Mousina said excess savings are still providing a cushion for households amid rising inflation and mortgage repayments.  

“We expect these savings to be drawn down over coming quarters which will weigh on consumer spending,” Ms Mousina said.  

3. Demand for air travel is back 

The pandemic wreaked havoc on the global travel industry, but airlines are back in business. 

Pent-up demand for travel drove activity in the air transport industry 25.2% higher in the September quarter, the ABS said.  

Morningstar anticipates the continued easing of international border restrictions will lead to a boon in tourism.  

For investors, that could present opportunities to buy undervalued stocks.  

With a fair value estimate of $23.50 per share, Corporate Travel Management (CTD) is trading at a discount of 35%.  

Morningstar director of equity research Brian Han says itpresents a ‘window of opportunity’ for investors to take advantage of a market ‘excessively influenced by cyclical challenges’ and losing sight of the longer-term recovery potential. 

But that doesn’t mean all travel stocks present great value.  

Despite recent profit upgrades, Qantas (QAN) is trading at a range Morningstar considers to be fairly valued, as is Webjet (WEB) and Flight Centre (FLT).  

4. As is demand for cars

Material shortages and supply bottlenecks during the pandemic caused lengthy delays for new cars.  

But with those supply issues starting to ease, the ABS says Australians bought more cars in the September quarter.  

Household purchases of transport services rose 13.9%, reaching 70% of pre-pandemic levels.  

According to the Federal Chamber of Automotive Industries, 87,299 new cars were sold in October, 16.9% higher than a year ago.  

FCAI chief executive Tony Weber said it signals car companies are making progress on overcoming logistical challenges. 

“Globally, car manufacturers have been heavily impacted by the Covid 19 pandemic,” Mr Weber said. 

“This October figure is a positive sign that supply chains are recovering and consistency is returning to the marketplace, but we still have some way to go before it returns to normal." 

5. Exports supercharged by lithium 

Lithium has surged into Australia’s top 10 export commodities following a strong rally in the lithium price over the past year.  

The ABS says Australia’s lithium concentrates exports reached a value of $3.4 billion this quarter, a six-fold jump over the year.  

ANZ senior economist Catherine Birch says demand for lithium and other critical minerals used in new technologies is expected to rise exponentially as the world transitions to net zero carbon emissions.  

“Rechargeable batteries consume about three-quarters of the world’s lithium, and demand for electric vehicle batteries has been rising sharply, but lithium supply is limited,” Ms Birch said. 

“Australia has an abundance of these minerals.” 

She noted lithium prices have fluctuated heavily over the past decade, with an initial boom between 2013 and 2018, followed by a downturn over the next three years.  

“In 2021, a change in sentiment in the automotive sector sharply boosted demand for EV batteries,” Ms Birch said.  

“Despite a minor dip in prices over the last few weeks on rumours of an EV production downgrade in China, prices are around record highs and we expect them to remain elevated, though they may level off.”