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Australia’s economy grew at a slower rate than expected in the third quarter, raising expectations of a central bank interest rate cut early next year and sending the currency to its lowest level in seven months.
Treasurer Jim Chalmers, speaking at a press conference after the data’s release on Wednesday, said the 0.3 per cent growth in GDP during the three months to September was “very weak” and “soft”, as high interest rates stifled consumer demand and an uncertain global outlook, including a weaker Chinese economy, damped trade.
The tepid growth rate was weaker than the 0.5 per cent anticipated by economists. The year-on-year increase was 0.8 per cent, compared with an expected 1 per cent, and was the lowest in three decades outside the pandemic.
The Australian dollar weakened 1.1 per cent against the US dollar after the release of the figures.
Goods exports grew 0.9 per cent in the quarter, boosted by coal, but services exports fell 3.6 per cent due largely to a drop in education-related travel.
Chalmers nonetheless argued that the economy was still growing, with unemployment remaining at low levels, inflation cooling and incomes growing.
Paul Bloxham, an economist at HSBC, said measures taken by the Labor government to ease the cost of living in the country — including energy subsidies and tax cuts — only had a limited impact on consumer spending.
“Australia has not had a recession, but growth has been sluggish for [an] extended period,” he said.
Gareth Aird, an economist at CBA, said: “The economy remains two‑speed. Economic growth in the private sector has been non-existent over the past two quarters. It is only public spending that has kept GDP growth positive over that period. This is an unusual situation and one that is largely behind the ongoing period of very weak productivity growth.”
Chalmers argued that the biggest component of increased public spending had been on defence.
The Reserve Bank of Australia, which holds its last interest rate meeting of the year next week, had forecast GDP growth of 1.5 per cent for 2024.
Aird said that would require the economy to grow by 0.8 per cent in the fourth quarter, a forecast he sees as “too strong”.
The RBA has defied hopes of an interest rate cut in recent months, despite an easing of monetary policy in countries including New Zealand and the UK as inflation has cooled.
The weak GDP numbers heightened expectations among analysts that a rate cut would now occur early next year. The RBA has held interest rates at 4.35 per cent since November last year.
The central bank has said it needs to see inflation drop to the midpoint of its 2 to 3 per cent target range on a sustainable basis before it considers cutting. Inflation in the three months to September dropped to 2.8 per cent.
Some economists argued that the economic data released on Wednesday was backward-looking compared with retail sales and labour market statistics that feed into the central bank’s forecasting. “These higher-frequency releases are painting a rosier picture of growth than GDP numbers,” said ING in a note.
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