Supermarkets and retailers suffered a sharp drop in profits in the first three months of 2024, with experts warning the economy is a heartbeat away from a recession.
For the March quarter as a whole, gross operating profit fell 2.5 percent, the Australian Bureau of Statistics said on Wednesday, as household budgets cut spending.
Profits in the construction, transport and retail sectors are moving in the opposite direction, putting cold water on accusations of corporate profiteering.
As a result of falling commodity prices, mining profits also fell sharply, down 6.1 percent for the quarter.
Profits in the lodging, catering and hospitality sectors rose by just 1 percent.
The new figures will be part of the March national accounts data, which will be released on Wednesday. Economists expect the economy to grow at an anemic 0.2 percent in the first three months of 2024.
Speaking in Question Time on Tuesday, Treasurer Jim Chalmers focused on calls for Labor to make deeper cuts to help the Reserve Bank in its efforts to curb inflation.
An outcome in line with consensus forecasts would see annual growth fall to just 1.2 percent – the weakest non-pandemic performance since dot compression and the introduction of the GST in 2000.
That figure would also be easily exceeded by projected population growth of 2.5 per cent, which would deepen Australia’s per capita recession for a fourth consecutive quarter.
Speaking in Question Time on Tuesday, Treasurer Jim Chalmers focused on calls for Labor to make deeper cuts to help the Reserve Bank in its efforts to curb inflation.
“Some of the most aggressive commentary we see completely ignores the fact that the economy is already weak and people are already under pressure,” Dr Chalmers said.
“Under these circumstances, it would have been insane to tighten the screws even further for a soft economy, and for people who are already struggling.”
After Tuesday’s figures, KPMG chief economist Brendan Rynne said March’s GDP figures would show the economy was “a heartbeat away from recession”.
“Combined with the December quarter of 2023, it appears that the domestic economy has barely grown over the past six months,” he said.
Under normal circumstances, Dr Rynne said the weakness of the economy would prompt the RBA to cut rates to stimulate activity.
“However, with inflation still stubborn and demonstrating this ‘last mile’ to the target market is a much more difficult path, KPMG expects the RBA to sit on its hands for at least another quarter,” he said.
Separate figures also released by the ABS show Australia’s current account fell into a $4.9 billion deficit in the March quarter, much weaker than expected.
Throughout the quarter, imports of consumer goods such as clothing, footwear and medicines rose, while exports of key raw materials including coal and iron ore fell.
On the services side, the value of Australian exports rose as more tourists came to Australia to attend Pink and Taylor Swift shows, but imports fell as local travelers gave up overseas trips due to increasing cost-of-living pressures.
With import growth significantly outpacing export growth, Australia’s foreign trade is expected to shave 0.9 percentage points from Wednesday’s GDP reading.
Australian imports are significantly higher than exports, taking a hit to GDP
However, the decline is expected to be offset by a stronger-than-expected rise in business inventories, which will add a percentage point to GDP.
But Dr. KPMG’s Rynne warned that much of the restocking by retailers over Christmas and New Year had yet to be purchased.
“This new inventory has not been sold as consumers continued to scale back their spending in the first quarter of 2024, resulting in a build-up of inventory across the country,” Mr Rynne added.
Meanwhile, recurrent government spending is also expected to add a further 0.2 percentage points to GDP, the ABS said, which is slightly higher than forecast.
“The outlook for public demand remains robust, with additional spending in the budget expected in the coming financial years,” added CommBank senior economist Stephen Wu.
Citi chief economist Josh Williamson said Tuesday’s data indicates the economy is slowing faster than the RBA expected.
“The RBA should see the slowdown as evidence that monetary policy is working to create a better balance between supply and demand,” he said.