Productivity was flat in the quarter and lifted one per cent throughout the year, sparking concerns the economy is running beyond its capacity.<\/p>\n
This comes as public sector spending sits at around 29 per cent of the nation\u2019s economy and is well above historical averages.<\/p>\n
KPMG\u2019s chief economist Brendan Rynne noted that growth was excessively boosted by public sector spending, as public investment growth outweighed private business investment.<\/p>\n
\u201cThe December National Accounts do not show an economy that is turning a corner from a standard of living perspective,\u201d Mr Rynne said.<\/p>\n
\u201cRather, they reaffirm a position of a weak private sector, a concerned household sector, and a government sector that is crowding out business.\u201d<\/p>\n
He noted that growth was supported by a build-up of inventories – 40 per cent of which are public sector related – which contributed 0.4 per cent to GDP growth.\u00a0<\/p>\n
Public sector spending as a share of GDP rose from 28.5 per cent in the September quarter to 28.6 per cent in December.<\/p>\n
Mr Rynne stressed that the upcoming federal budget in May will be crucial for Labor to adopt reforms that \u201callows the economy to reset a course that produces improved outcomes for all Australians\u201d.<\/p>\n
Capital Economics\u2019 head of APAC Marcel Thieliant said the public sector was heaping pressure on the economy and could force the Reserve Bank of Australia to hike interest rates.<\/p>\n
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\u201cThe inexorable surge in public spending in recent years is a key reason why capacity constraints never disappeared despite aggressive monetary tightening,\u201d Mr Thieliant said.<\/p>\n
\u201cAnd with scant evidence that Labor has learned its lesson, the RBA has more work to do.”<\/p>\n
His warning comes as unemployment hovers near historical lows at 4.1 per cent and inflation remains well outside the RBA\u2019s 2-3 per cent target band at 3.8 per cent.<\/p>\n
The RBA was forced to hike the cash rate last month, despite cutting three times last year.<\/p>\n
Money markets are now pricing in a 34 per cent chance of a rate hike next month, up from 32 per cent before the data was released.<\/p>\n
Wednesday\u2019s GDP figures beat market expectations of 2.2 per cent annual growth and 0.6 per cent growth in the quarter.<\/p>\n
Public and private demand each contributed 0.3 per cent to the GDP growth while GDP per capita increased for the fourth consecutive quarter, sitting 0.9 per cent higher than a year ago.<\/p>\n
This represents the highest through-the-year growth since the 2022 December quarter, ABS head of national accounts Grace Kim said.<\/p>\n
Westpac\u2019s Pat Bustamante said domestic demand momentum was exceeding the nation\u2019s potential growth rate, putting pressure on the government to reel back spending.<\/p>\n
\u201cWhat had been framed as a handover from public to private sources of growth now looks more like a temporary breather in public demand, with both public and private spending again contributing to growth,\u201d Mr Bustamante said.<\/p>\n
Inflation could be also under pressure from the conflict in the Middle East as oil prices soar.<\/p>\n