Australia’s economy continued to slow over the final three months of 2022 as households tightened their belts, new official data has revealed.

Australian Bureau of Statistics figures published Wednesday showed Gross Domestic Product (GDP) grew by 0.5 per cent in the December quarter and by 2.7 per cent in annual terms – slightly less than forecast.

Katherine Keenan, head of national accounts at the ABS, said growth was driven by household consumption and yet another rise in exports.

But families have also begun tightening their belts on the back of high inflation and massive interest rate hikes, with the economy slowing on the back of a marked reduction in our spending growth.

Household consumption rose just 0.3 per cent on the back of a big fall in discretionary spending, which plunged from 1.9 per cent to 0.4 per cent.

“After four quarters of strong growth following the Delta-variant lockdowns, growth in household spending softened in the December quarter,” Ms Keenan said.

“Spending on discretionary services drove the rise in household consumption. However, growth markedly slowed in comparison to the September quarter.”

Trade was the other major contributor to GDP in the quarter, adding 1.1 percentage points to growth amid a sharp 4.3 per cent fall in imports.

Private investment was down 1.7 per cent on the back of a 1.4 per cent fall in business investment, which the ABS blamed on the completion of major projects weighing on non-dwelling construction across the nation.

Treasurer Jim Chalmers said the slowing growth was not unexpected.

“This is the inevitable consequence of global challenges, high inflation, and rising interest rates. These numbers tell the story of 2022, and we know that 2023 will be a different story … We knew that 2023 would be a challenging year for the economy, and we still expect that to be the case,” he said.

“Interest rates are biting. Higher inflation has been biting in our economy and we’re not immune from global conditions either … I’m confident the worst of inflation is behind us rather than ahead of us. But we don’t pretend away the substantial challenges in our economy replete in today’s national accounts.”

Shadow treasurer Angus Taylor used the latest national accounts data to again accuse the government of a tax grab with its proposed changes to super tax concessions.

“Make no mistake about it, Labor’s 2019 big-taxing agenda is back,” he said.

“We need an Australian government that is focused on the priorities of the Australian people and the top priority right now is helping Australian households and businesses to make ends meet. That is clearly not the priority of this government.”

Consumption eases as savings fall

Household spending was the main focus of economists, however, as it’s responsible for the majority of economic growth and is the focus of RBA efforts to curb inflation by reducing demand for goods and services.

The reduction in consumption was expected on the back of the RBA’s record breaking rate hikes, with experts saying on Wednesday that the figures are consistent with a slowing economy over the coming year.

The household savings rate also continued to fall, declining from 7.1 per cent to 4.5 per cent in the December quarter – the lowest since 2017.

It suggests families have little capacity to fuel more spending in 2023.

“Australia’s economy grew in the December quarter, but it wasn’t the type of growth that should give people much confidence,” said Indeed APAC economist Callam Pickering.

“This coming year will prove highly challenging, with the household sector no longer in a position to drive growth.

“While some forward-looking measures of economic performance continue to perform well, the overall picture shows an economy that is slowing down.

“A significant economic downturn is increasingly possible, although a near-term spike in the unemployment rate seems unlikely.”

There was also evidence that prices continue to grow quickly, with the GDP implicit price deflator (a measure of inflation) rising 1.6 per cent in the December quarter and by 9.1 per cent through the year.

“This was the strongest through the year growth in domestic prices since the March quarter 1990,” the ABS said.

BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said there was “little in today’s data that suggests Australia’s inflation problem is solved”.

However, seperate inflation figures published by the ABS on Wednesday showed monthly inflation moderated to 7.4 per cent annually in January.

That’s down from 8.4 per cent in December, suggesting price growth has begun to moderate in the New Year.