Australia’s economy grew at its slowest pace since the global financial crisis in the last quarter, as cautious consumers keep a tight lid on spending in spite of a surge in the nation’s exports.
Data published by the Australian Bureau of Statistics on Wednesday show gross domestic product grew 1.4 per cent in the second quarter compared to the same period last year, even as booming commodity exports produced the nation’s first current account surplus since 1975.
However, growth in household consumption — which makes up almost 60 per cent of the economy — dropped to 1.4 per cent in the year to June, down from 1.8 per cent three months earlier.
GDP grew 0.5 per compared to the first quarter, in line with economists’ consensus forecasts and dampening fears that Australia’s record run of 28 years without recession was at risk.
Australia’s economy has benefited from a surge in iron ore prices this year, as a result of supply disruptions in Brazil, its main competitor, and record Chinese steel production. Increased volumes of liquefied natural gas and coal exports also fuelled a A$5.8bn ($3.9bn) trade surplus in the June quarter — the first for 44 years.
A surge in government expenditure and trade contributed 0.5 per cent to growth in the quarter.
Nonetheless, a steep fall in house prices, high household debt and weak wages over the past two years have hit consumer spending, prompting the Reserve Bank of Australia to make successive interest rate cuts in June and July. Household consumption added just 0.2 percentage points to GDP growth and investment in housing slumped 6 per cent from the previous quarter.
“All told, today’s GDP figures underline that the risk of a recession has diminished,” said Marcel Thieliant, economist at Capital Economics. “But with the global economy reeling and high household debt weighing on consumption, we reiterate our forecast that GDP growth will be just 2 per cent in 2020.”
Gareth Aird, economist at Commonwealth Bank of Australia, said the worst may be over for consumers due to tax cuts and lower interest rates.
“Dwelling prices are lifting which turns a negative wealth effect into a positive one. Mortgage rates have moved down which will lower the interest costs faced by households that carry debt whilst boosting the demand for new credit,” Mr Aird wrote in a note.
Barclays said the RBA’s strong emphasis on reducing the 5.3 per cent unemployment rate and the weak household sector means that it needs to ease rates earlier than it has factored into its forecasts issued last month.
“As such, we expect the RBA to deliver a rate cut in October, followed by another cut in November of 25 basis points each, taking the cash rate to 0.50 per cent,” said Barclays in a note.
The Australian dollar hit a one-week high of $0.6782 against the US dollar following the report.