The latest insights from Deloitte Access Economics have painted a picture of a two-speed economic recovery in Australia, with the economy remaining reliant on public sector spending, while private investment and productivity are weak.

Analysis from senior partners David Rumbens and Stephen Smith points to data released by the Australian Bureau of Statistics (ABS), which shows the Australian economy grew by 0.3% in the September quarter of 2024, and 0.8% over the past 12 months - the lowest growth rate since the pandemic impacted the December quarter of 2020, indicating a slow recovery.

"The overall picture remains largely unchanged. The Australian economy continues to be underpinned by public sector expenditure, with government consumption and public investment both contributing to growth in the September quarter," the pair wrote. "The strong rise in government spending offset declines in non-residential building and private sector inventory investment. This dynamic provides further evidence of the two-speed economy emerging in Australia, where the public sector is expanding rapidly while the private sector struggles to achieve comparable gains.

"With households under pressure in a higher cost of living environment, federal and state governments have stepped in with a suite of household support measures to help Australians and to shore up voter support. Recurrent government spending, which includes cost of living subsidies on programs like Medicare and the NDIS, rose 1.4% in the quarter and 4.7% over the year to September, well above the 3.4% average in the decade before the pandemic. The scale has been significant – federal government spending as a share of nominal GDP is 3.0% higher than a decade ago while state government spending is 2.5% higher. Government consumption and public investment both contributed to growth in the September quarter. Recurrent government spending, which includes cost of living subsidies on programs like Medicare and the NDIS, rose 1.4% in the quarter and 4.7% over the year to September."

Private investment increased by a modest 0.1% in the quarter and 1.3% over the year, driven by dwelling construction which was up 1.2% in the quarter. However, non-residential construction activity dropped by 2.7% in the quarter, reflecting the ongoing challenges in the private sector.

In September 2024, the household saving to income ratio jumped to 3.2% from 2.4%, while household consumption remained unchanged from the previous quarter. Spending on essentials fell by 0.1% in the quarter as the implementation of the energy bill relief rebates reduced the cost of electricity and gas.

Per capita GDP declined by 0.3% in the September 2024 quarter, marking the seventh consecutive contraction in per capita growth. Weak productivity in the quarter, coupled with a declining terms of trade, has further eroded living standards.

"The economy continues to lean heavily on public sector spending and population growth while grappling with stagnant productivity. Without a shift in this growth mix, achieving stronger and more sustainable economic growth will remain elusive."