Australia’s economic growth beat analysts’ forecasts in the first few months of the year, but there is evidence that the benefits are being felt more by business owners than workers.
- GDP grew more than economists had expected, with the economy growing 3.3% over the past year
- Employee compensation is up 5.5% over the past year, but corporate profits are up 21.6%.
- The largest increase in imports since December 2009 has been the main drag on the economy
Australia’s economy grew 0.8% in the March quarter and 3.3% over the past year, according to Australian Bureau of Statistics National Accounts data.
Economists polled by Reuters generally expected quarterly growth of 0.5% and 2.9% in the year to March 31.
The main contributors to the better than expected result are:
- a rise in inventory as businesses restocked following supply chain disruptions (+1 percentage point)
- household consumption (+0.8 percentage point)
- public expenditure (+0.6 percentage point).
The biggest drag on the economy has been an increase in imports – which subtracted 1.7 percentage points from GDP – as some COVID-related supply bottlenecks eased and businesses recovered. are replenished.
The ABS noted that the first three months of this year saw the largest increase in imports since the December 2009 quarter.
“Consumers happy to go out and spend”
Increased government spending was largely driven by healthcare costs as the Omicron wave of COVID-19 hit Australia hard.
But, despite the disruption caused by both Omicron and severe weather in eastern Australia, travel, leisure and restaurants led the 1.5% rise in household spending.
Transport services (+60%), leisure and culture (+4.8%) and hotels, cafes and restaurants (+5.3%) were all the big beneficiaries of the easing of restrictions linked to COVID-19.
The ABS noted that the March quarter was the first time discretionary spending — purchases consumers don’t have to make — had recovered to be above pre-pandemic levels.
ANZ economist Felicity Emmett said it was a good sign for the economic outlook.
“Many of us – ourselves, the RBA – expect consumer spending to be a key driver of strong growth through 2022,” she told The Business. ABC TV.
Much of this spending was funded by a drop in the household savings rate from 13.4% to 11.4%, although it remains well above pre-pandemic levels of 7% or less.
“So there’s still a lot to fall, and I expect we’ll see that over the next couple of years,” Ms Emmett added.
Wage Growth Paths Increase Profits
One of the reasons savings rates are falling is that wage growth continues to lag the rise in prices of goods and services.
ABS reported a 1.8% increase in total employee compensation in the quarter, although hours worked fell 0.9% due primarily to Omicron-related absences.
Ms Emmett said ANZ’s calculations show hourly wages rose by around 2.7 per cent in the quarter and 5.3 per cent in the past year, far more than the wage increase 2.4% recorded in the ABS wage price index for the March quarter.
“I think this will really ring a bell for the RBA,” she said, referring to the implications that much larger wage increases would have for continued high inflation.
However, Ms Emmett also noted that the drop in hours worked during the quarter was due to the Omicron wave of COVID-19 and that many workers would have received paid sick leave while away from work, which would distort the hourly wage.
This seems to be reflected in the national accounts, where the increase in wages was accompanied by a 1.9% increase in the number of people employed, meaning that the increase in wages was spread over a larger number of workers, even if they worked fewer hours.
ABS also saw a jump in labor productivity of 1.7% in the quarter as workers maintained production despite staff absences, leading to a strong productivity gain of 2.8% in the quarter. course of the past year.
This resulted in a 2.7 per cent annual decline in real unit labor costs, the main measure of wage cost as a share of output produced.
It is therefore not surprising that the so-called gross operating surplus (essentially profits) of non-financial companies jumped 7.3% in the quarter, led by mining (due to strong increases commodity prices for LNG, coal and iron ore) and wholesale trade (on improving profit margins for grain, oil and cars).
However, the ABS noted a drop in profits for manufacturers, largely due to higher input costs, as well as declines for construction, hospitality and other services as government subsidies were reduced.
The share of profits in GDP at a “record record”
Over the past year, employee compensation has increased by 5.5%, with much of the increase reflecting more people in employment rather than wage increases.
Over the same period, the gross operating surplus of non-financial corporations jumped by 21.6%.
“One of the impacts of higher terms of trade and profits is that the share of income going to profits is higher than wages,” noted EY chief economist Cherelle Murphy.
A microcosm of this national trend is an ongoing pay dispute at the Golden Circle food processing plant in Queensland.
Workers there stopped work on Wednesday due to a wage dispute. They want a pay rise that keeps pace with inflation (currently 5.1 percent), but say the company is offering between 2 and 2.5 percent a year on a four-year contract.
“We’re just asking for a chance after we show up every day because of pandemics and floods and everything,” said Natasha Wisniewski, a United Workers Union delegate and Golden Circle worker of 23 years.
“We’re taking action because we don’t think it’s fair that we’re falling so far behind as the cost of living skyrockets.”
Golden Circle, owned by US food giant Kraft Heinz, responded:
“We are passionate about the continued success of our Northgate plant and have been actively engaging with all interested parties over the past few weeks. We will continue to focus on achieving a mutually acceptable outcome. »
“It has been quite difficult” for companies
Not that the current environment has been fluid for many companies.
Schibello Coffee Group roasts approximately 10 tonnes of beans each week in its Sydney and Brisbane warehouses to supply customers in Australia and Asia-Pacific.
When the Omicron variant of COVID-19 arrived, it was a big hit for their operations.
“We probably had about 40% of our workforce in January and February affected,” said director and chief operating officer Aleksandar Mitrevski.
“A lot of our customers were also affected, so that was a pretty big drop from January. [the] Year before.
He said the company was working hard to continue supplying customers in New South Wales, Queensland, Victoria, Western Australia, Fiji, Indonesia, Hong Kong, Shanghai and Singapore.
However, as evidenced by the good results of cafés and restaurants in the national accounts, the disruptions affected supply much more than demand.
“Demand is quite strong for coffee, tea and the social aspect,” Mr Mitrevski said, adding that he expects this to continue even when the recent rebound in spending on non-essentials s will fade.
“As discretionary spending tightens, consumers will still go to the coffee shop to, you know, enjoy that coffee experience.”
As Mr Mitrevski believes the hospitality industry is “in a recovery phase”, inflationary pressures are starting to bite.
“One of the biggest challenges for the cafe, the hospitality industry, is the shortage of workers and the increased demand for wages,” he said.
Getting their coffee to their customers is another growing cost that the Schibello Coffee Group faces.
“Just look at a lot of suppliers, they now have contracts in place for fuel surcharges…and with the latest crisis in Russia and global markets, I don’t see that easing anytime soon.”
Rising costs were also reflected in the national accounts, with the inflation measure jumping 2.9% in the quarter, the highest since March 1988, and the domestic level of inflation at 1.4 %, the fastest rate of price increase since the introduction of the GST added 10% to the cost of many goods and services overnight.
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