analysis
What the latest GDP numbers mean for interest rates and the economy
Treasurer Jim Chalmers has been more circumspect about the economy than Paul Keating was when in the role. (ABC News: Matt Roberts/National Archives of Australia via AAP)
On a couple of occasions, former treasurer and prime minister Paul Keating described favourable gross domestic product figures as "a beautiful set of numbers".
Once those comments preceded a nasty recession; later they preceded Australia's most sustained period of economic growth, following that recession.
"They are because they prove the recovery is sustainable," Keating observed in 1995.
Unfortunately for him, he was booted from office a year later and John Howard and Peter Costello claimed the bulk of the credit for Australia's multi-decade recession-free run that followed.
Perhaps having learnt lessons from his Labor predecessor, Treasurer Jim Chalmers was far more circumspect in his assessment of the latest National Accounts published by the ABS.
"This is a positive and promising result and shows we've made a lot of progress together in our economy."
It's an assessment with which most economists broadly agree.
"Looking through the noise, we would characterise growth as continuing to be in a modest upswing," concluded HSBC's Paul Bloxham, in a view that was generally reflective of the mainstream verdict.
Business investment was a key driver of growth, while the manufacturing sector also saw a resurgence. (ABC News: John Gunn)
The angel is in the detail
While the headline quarterly growth figure of 0.4 per cent was below most forecasts, upward revisions to prior quarters left the annual number close to expectations at 2.1 per cent.
More important was the detail in the quarterly number.
The biggest drag by far was a fall in inventories — that is stock held by businesses.
This wiped 0.5 of a percentage point off the headline quarterly GDP number.
But it's actually good news.
A fall in inventories generally means that businesses are likely to rebuild those stocks, which will boost future GDP numbers.
Also, in this case, the ABS noted that most of the decline in inventories was caused by iron ore miners and LNG producers selling off some of their stockpiles while they scaled back production to perform maintenance work.
Again, this should be a positive for future output.
An explosion in new data centres helped power Australia's economic growth. (ABC News: John Gunn)
One of the key drivers of growth — private investment — also painted a fairly rosy picture of the future.
Businesses ramped up their spending on machinery and equipment by 7.6 per cent over the quarter, with the ABS suggesting much of this was spent on new data centres.
The AI revolution finally appears to be reaching Australia's shores.
Those with a more optimistic view, such as Westpac's economists, argue that this business investment combined with the "wash out" of some sector-specific factors in the care economy and mining should see productivity improve more strongly.
That would mean more output per hour worked, and the ability of profits and wages to grow faster without causing higher inflation.
The interest rate sting in the tail
Household spending growth came as discretionary spending edged down. (AAP: Bianca De Marchi)
But other economists are less optimistic about the acceleration of private sector growth at the same time as public investment and consumption continue to grow strongly.
"We risk having an economy that is pushing up against its potential rates of growth — an uncomfortable development given it comes at a time when inflation has accelerated," warns Alex Joiner from IFM Investors.
"Improvements in productivity growth remain modest and a re-acceleration of population growth still suggests that our economy gets bigger more quickly than it gets better."
That's led the Commonwealth Bank's economists to warn: "At this pace we consider the Australian economy has reached its current speed limit."
Which raises the question of what happens if the economy keeps growing at a decent clip and exceeds that limit?
"The economy is in good shape. Slightly too good, in fact, for the RBA," notes Harry Murphy Cruise from Oxford Economics Australia.
"With inflation rising and domestic momentum building, the central bank has its work cut out for it.
"Rate cuts are off the table for some time, and a hike next week to nip inflation in the bud can't be ruled out."
The market disagrees.
There's still next to no chance of a rate hike priced in for next week's RBA monetary policy meeting.
It would be highly unusual for the RBA to raise rates without some prior change in language warning financial markets, and borrowers, that such a move might be on the cards.
RBA governor Michele Bullock was in front of a Senate committee this morning and did not take the opportunity to explicitly raise the prospect of imminent rate rises.
A more likely scenario is that the board shifts to a totally neutral stance after its meeting next week, where staying on hold is the outcome, but either cutting or raising rates are left on the table for future meetings, depending which way the data heads.
The market is pricing in around a three-quarter chance of a rate hike by the end of next year, with a decent number of bets on a first rate rise as early as May, according to LSEG data.
In turn, that could undermine the nascent private sector recovery underway.
While household spending growth of 0.5 per cent in the September quarter looked decent, it was only marginally ahead of population growth.
And all of the growth came from spending on essentials, with discretionary spending edging down.
Household savings also grew, showing that at current interest rates many Australians are more inclined to stash away the extra cash they're taking home rather than splurge it.
Emerging talk of interest rate rises is hardly going to get their wallets open over summer.