(Bloomberg) — Australia’s economic weakness persisted in the three months through June as consumers hunkered down in the face of elevated borrowing costs and stubbornly sticky inflation.
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Gross domestic product advanced 0.2% from the prior quarter, propped up by government spending and matching economists’ estimate, Australian Bureau of Statistics data showed Wednesday. From a year earlier, the economy grew 1% from an upwardly revised 1.3% and forecast of 0.9%.
“Excluding the Covid-19 pandemic period, annual financial year economic growth was the lowest since 1991-92 — the year that included the gradual recovery from the 1991 recession,” Katherine Keenan, ABS head of National Accounts, said in a statement. The economy expanded 1.5% during the financial year ended June 30.
The Australian dollar held onto its declines, as did the interest-rate sensitive three-year government bond yield.
With annual growth slowing from a decade average of 2.4%, the data are likely to ease concerns about demand-driven inflation pressures in the economy. That suggests the RBA can remain in a holding pattern for a while in order to assess the economy, with the cash rate currently at a 12-year high of 4.35%.
The RBA reckons the second quarter was the nadir of the slowdown, predicting the annual expansion will accelerate to 1.7% by year’s end before picking up to 2.5% in late 2025.
Bloomberg Economics expects growth will remain subdued this year, as the cumulative impact of higher rates damps household demand and housing-related activity.
Wednesday’s data showed the household savings ratio held at 0.6, having slipped from a peak of 24.1% in June 2020 and underscoring the limited financial cushion available to Australians.
Household spending slid 0.2% in the second quarter, detracting 0.1 percentage point from GDP growth. “The strongest detractor from growth was transport services, particularly reduced air travel,” the ABS’s Keenan said. “This was the first fall for this series since the September 2021 quarter.”
Government spending climbed 1.4%, led by programs for health services and adding 0.3 point to GDP growth.
The figures follow the RBA’s decision to leave rates unchanged last month, with Governor Michele Bullock saying it’s premature to think about rate cuts yet. Her deputy Andrew Hauser last week reinforced that view, saying inflation was still a “bit stickier” in Australia than in countries like the US.
Most economists believe the RBA has concluded its tightening campaign, with a cut seen in February 2025. By comparison, the Federal Reserve is likely to cut rates this month with Europe, New Zealand and the UK already on an easing path.
“Today’s National Accounts confirm the Australian economy barely grew in the June quarter,” Treasurer Jim Chalmers said in a statement. “Really soft growth reflects the impacts of global economic uncertainty, higher interest rates and persistent but moderating inflation.”
Today’s GDP report also showed:
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Services exports rose 5.6% in the second quarter following falls in the previous two periods. This was led by education-related travel services particularly from a rise in average spending
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Per capita GDP fell for a sixth consecutive quarter, sliding 0.4%
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Gross disposable income rose 0.9%, outpacing a rise in nominal household spending of 0.7%, the ABS said
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Higher household earnings were partly offset by an increase in income tax payable and mortgage payments
(Updates with further details from release.)
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