Australia’s ‘private sector recession’

The Australian private sector is in recession, according to investment manager, Franklin Templeton.

Reacting to the release of Australia’s Growth Domestic Product (GDP) which has slumped to 1%, Franklin Templeton Fixed Income director, Andrew Canobi said that the GDP figures had confirmed the firm’s fears.

“Growth is anaemic at a mere 0.2% for the second quarter, household consumption was very weak and overall detracted from GDP by 0.1%, investment remained soft and only government spending saved the figure from being negative overall by contributing 0.3%,” Canobi said.

“In fact household spending looks to have been the weakest since the COVID lockdown era.

“Unfortunately, none of this will spur the RBA to ease rates with government spending more than plugging the gap of a retrenching consumer. So, the private sector is in recession, government spending is more than offsetting this keeping the headline numbers barely positive,” Canobi said..

“Further, strong growth in unit labour costs and negative GDP per hour worked confirms our fears that Australia is stuck in a weak productivity, high-cost malaise.  All this equals to higher interest rates for longer.  Not happy reading.”

For its part, State Street Global Advisors APAC economist, Krishna Bhimavarapu said that the data represented perhaps the clearest indication yet that policy is restrictive enough in Australia.

“This data should at the very least lead the RBA to make a dovish pivot, considering how uncertain they were during the last meeting,” he said.

Bhimavarapu said the firm was still looking for the first rate cut in November as headline CPI could ease to around 3% in Q3.