AUSTRALIA DATA: Productivity Rises, ULC Should Improve Over 2024

The RBA has continued to point out that productivity in Australia needs to improve for wages growth to be consistent with target. It rose 0.5% q/q in Q4 to be down 0.5% y/y, in line with RBA forecasts. It expects it to rise 3% y/y by mid-2024 and ease to 1.4% y/y by Q4. It has been improving due to hours worked contracting. The Q4 development is good news but unit labour costs, which the RBA has said are too high, remain a problem but they should improve over 2024.

• Unit labour costs rose 1.2% q/q to be up 6.6% y/y, up from Q3’s 6.3%. They rose by a lower 0.9% q/q in Q4 2022. While ULCs continue to rise at these rates, it is likely to remain a concern and keep the MPC cautious.
• Hours worked fell 0.3% q/q to be up 2.1% y/y, the lowest since Q1 2022. This trend is likely to continue given the easing in the labour market, which should help to increase productivity this year.
• Assuming hours worked fall over H1 2024 and then stabilise before returning to trend growth of 0.4% q/q by end 2025, annual productivity growth should be positive over that period and so ULC growth should return to more acceptable rates by mid-2024 assuming the RBA’s WPI forecasts. ULCs will also be helped by favourable base effects.

Source: MNI - Market News/ABS/RBA