Thu, Jun 06, 2019 - Page 10 News List

Australia GDP expands at slowest pace in a decade

Bloomberg

Australia’s economy expanded at the slowest pace in almost a decade as a prolonged housing downturn weighed on consumer spending, underscoring the central bank’s decision to lower interest rates.

GDP advanced 0.4 percent in the first three months of the year from the previous quarter, data released yesterday by the Australian Bureau of Statistics showed.

The economy grew just 1.8 percent from a year earlier, the weakest reading since the global financial crisis, as households boosted their savings and cut spending in a classic response to wealth erosion.

“The data confirm that the economy started 2019 very softly,” said Sarah Hunter, head of macroeconomics at BIS Oxford Economics in Sydney. “Consumers continue to be battered by weak income growth and this was added to by the drag from sharply falling house prices.”

The currency was little changed after the GDP release.

The report comes a day after the Reserve Bank of Australia (RBA) cut rates for the first time in almost three years to revive consumption, which accounts for almost 60 percent of GDP, and spur economic growth.

RBA Governor Philip Lowe said the easing should encourage hiring and investment, and help lower unemployment. The wild card is the escalating trade dispute between the US and China.

Lowe is expected to ease again this year — with a better than 60 percent chance of an August cut — to bring the cash rate to a new record-low 1 percent.

Such a level, together with an easing of lending restrictions, should help put a floor under tumbling property prices that have prompting consumers to rein in spending. In Sydney, housing has fallen 15 percent.

The report showed that government spending and exports were key drivers of the expansion, adding 0.2 percentage point apiece.

Dwelling investment fell 2.5 percent and home ownership transfer costs slumped 13 percent amid the property downturn, collectively shaving 0.3 percentage points from economic growth.

The household savings ratio advanced to 2.8 percent from a revised 2.6 percent in the final three months of last year.

The RBA needs the economy expanding at 3 percent or more to drive the jobless rate down to 4.5 percent, the level which Lowe believes would stoke consumer prices sufficiently to return inflation to the central bank’s 2 to 3 percent target.

However, outside government spending and high resource prices — reflected in the terms of trade jumping 3.1 percent in the quarter — the economy looks moribund.

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