Household savings battered as Australia's economy picks up, defying expectations

The household saving to income ratio fell for the seventh straight quarter to 3.2%, its lowest level since June 2008.

The household saving to income ratio is calculated by dividing household savings by household disposable income. A lower household saving ratio indicates that, generally, households are spending more and saving less.

The saving ratio has been on a downward trajectory since 2022, on the back of a slew of double rate hikes by the Reserve Bank of Australia (RBA) between June and September last year.

“The fall in the household saving ratio was driven by higher interest payable on dwellings, income tax payable and increased spending by households due to the rising cost of living pressures,” Ms Keenan said.

Household income saw a 1.8% uptick, with interest earnings and employee compensation the key driving factors.

Household expenditure continued to show restraint, increasing by a mere 0.1% and contributing a similarly modest 0.1% to overall GDP growth.

Discretionary spending fell 0.5%, the third consecutive fall, while essential spending  rose 0.5% on the back of stronger demand for electricity, gas and other fuel needed for heating following a cooler than usual Autumn.

“Spending on essential goods and services were the main contributors to the rise in household spending, while many discretionary categories detracted. The exception was spending on vehicles which rose 5.8 percent as supply bottlenecks eased during the quarter,” Ms Keenan said.

Domestic price inflation held steady at 1.2%, propelled by increases in household rents, food prices, and capital goods, which surged as a result of the ongoing depreciation of the Australian dollar.

The RBA kept the cash rate on hold in September - at 4.10% - for the third consecutive month.

The Organisation for Economic Co-operation and Development (OECD) - of which Australia is one of 38 member countries - found GDP among the combined OECD nations rose by 0.4% quarter-on-quarter in Q2 2023, slightly down from 0.5% growth in the previous quarter, according to provisional estimates released this week.

While this data incorporates an array of vastly different economies and is not reflective of Australia’s individual situation, it does indicate that global GDP continues to trend downwards.

Although the global economy shows signs of stagnancy, this latest national accounts data highlights Australia’s economic resilience and is a positive indication that we may very well avoid a recession.