On a year-on-year basis, GDP growth decelerated to 1.5% from 2.1% in Q3, despite a full-year 2023 growth rate of 2.1%, surpassing expectations.

Barclays analysts anticipate that this slowing growth momentum, marking the fourth consecutive quarter of deceleration, will continue into 2024, with a forecasted average growth of 1.6%. This comes in the wake of weak domestic demand highlighted by a significant reduction in imports and modest consumer spending, which represents more than half of the economy. The softer economy in China and the global growth slowdown are expected to further impact Australia, coupled with a cautious policy easing from the Reserve Bank of Australia (RBA) expected only in the second half of 2024.

The RBA maintained the Official Cash Rate (OCR) at 4.35% during its February meeting while adopting a balanced outlook on future policies. According to the Statement of Monetary Policy (SoMP), the decision "balances the objectives of monetary policy," aiming to reduce inflation and support employment to full levels. The central bank also revised its inflation forecasts downward, now expecting to conclude 2024 at 3.2% y/y.

In terms of expenditure, net exports contributed positively to growth, mainly due to the pronounced decline in imports reflecting subdued domestic demand. Conversely, domestic demand added only marginally to growth, with government consumption increasing against a backdrop of falling capital expenditure.

Private consumption witnessed a slight uptick in Q4, following a contraction in the previous quarter, though discretionary spending continued to wane. The savings rate saw an increase, buoyed by higher household income from social benefits and compensation, despite the declining income payable.

From a production standpoint, the agriculture sector and manufacturing activity experienced significant declines, while mining and construction sectors posted growth. The services sector displayed mixed results, with slight overall growth tempered by declines in specific industries.

With inflation on a downward trend, Barclays predicts the RBA will begin lowering interest rates in Q3 2024, foreseeing a cumulative 75 basis points cut throughout the year. This approach aligns with global central banks' shifting towards more accommodative policies in response to lower growth outcomes amidst slowing inflation.