The Australian economy expanded at a slower-than-expected pace in the final three months of last year, in a sign the Reserve Bank of Australia’s (RBA) rapid interest rate increases are beginning to weigh on activity.
GDP advanced 0.5 percent from three months prior, coming in below economists’ estimates for a 0.8 percent gain, Australian Bureau of Statistics data showed yesterday.
Compared with a year earlier, the economy grew 2.7 percent, slowing from 5.9 percent, but matching economists’ forecasts.
Photo: Bloomberg
The result came together with separate data showing monthly inflation eased in January to 7.4 percent, well below estimates for 8.1 percent, sending the currency and Australian three-year government bond yields lower.
“Today’s data to me looks quite soft and below the RBA’s forecast,” AMP Capital Markets Ltd senior economist Diana Mousina told Bloomberg Television. “So I think we’re getting close to that RBA pause, maybe one more rate hike in March and then I think the risk is that the RBA will pause.”
While the GDP figures are a snapshot of the economy in the rearview mirror, early signs of a slowdown in economic growth and inflation are in line with what the RBA is trying to achieve.
The central bank forecasts that consumer prices peaked in the fourth quarter of last year and the early January data back that view.
Markets took it as a sign policymakers would be less aggressive. The Australian dollar dropped as much as 0.4 percent to below US$0.67 after the GDP and inflation data.
Yesterday’s report showed household consumption climbed 0.3 percent, adding 0.2 percentage points to GDP growth.
The economy has been bolstered by household spending, as Australians piled up savings of more than A$200 billion (US$135.2 billion) during the COVID-19 pandemic.
The household savings ratio fell to 4.5 percent, the lowest level since September 2017, from 7.1 percent three months earlier.
The RBA has hiked interest rates by 3.25 percentage points since May last year, taking the cash rate to a 10-year high. Money markets are pricing in a key rate of 4.2 percent this year, from 3.35 percent now, suggesting at least three more quarter-percentage-point rate hikes to come.
Australian Treasurer Jim Chalmers said over the weekend that he expected the economy would slow “considerably” this year, while expressing confidence that Australia would dodge a recession.
The RBA’s forecasts show Australia’s GDP growth slowing to 1.5 percent at the end of the year.
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