Australian economy grows modestly in Q2, easing recession fears

Office workers cross the street on September 4, 2017 in Sydney, Australia. Picture taken on September 4, 2017. REUTERS/Steven Saphore/file photo Get license rights

  • Growth is partly driven by returning students and tourists
  • Household consumption is sudued, yet weakness can be seen before
  • Productivity could be a challenge for the RBA

SYDNEY, Sept 6 (Reuters) – Australia’s economy expanded more than expected in the second quarter, driven by exports and investment, while household consumption remained weak.

Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product (GDP) rose 0.4% in the second quarter, slightly beating forecasts of 0.3%. This compares with an upwardly revised 0.4% growth in the first quarter.

Annual growth came in at 2.1%, beating expectations of 1.8%.

The world’s 12th largest economy was boosted by net exports, income from students and tourists and public investment. Taken together, they offset significant drag from commercial inventories.

„For all its challenges, the Aussie economy remains remarkably resilient,” said Moody’s Analytics economist Harry Murphy Cruz.

„Looking forward, growth will remain weak…household budgets will remain under pressure. Government consumption will moderate from its highest levels, and business investment will ease against a backdrop of squeezed profits.”

Household consumption, the engine of growth, was subdued with a gain of just 0.1% in the quarter due to spending on essential goods and services.

Consumers continued to save less due to higher living costs and rising mortgage repayments, which rose another 11% in the quarter. Their savings rate fell to 3.2%, the lowest level since 2008.

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The Reserve Bank of Australia (RBA) left interest rates unchanged for a third straight month on Tuesday, encouraged by signs that inflation was falling more than expected and economic growth was slowing.

Markets see a good chance the RBA is done, but most economists expect a further hike at the end of the year to bring inflation to heel.

Treasurer Jim Chalmers said the GDP report was a „stable and solid” result in difficult circumstances, with the economy expected to slow significantly due to high interest rates and global uncertainty, particularly around China.

„We’re realistic about the challenges ahead in the next 12 months, but we’re optimistic about the future of our economy and our country,” Chalmers said, adding that he doesn’t expect the economy to be in recession.

Wednesday’s GDP report showed that productivity remained a concern, with a manufacturing measure of GDP falling 2% per hour, the third straight quarter of decline.

Unit labor costs continued to rise at a faster pace with an annualized growth of 7.2% in the quarter.

„When inflation is at its peak, this will be a lingering cause for concern for the RBA,” Sean Longeck, head of macroeconomic forecasting for BIS Oxford Economics, said of labor costs.

Report by Stella Qiu; Editing by Jacqueline Wong and Lincoln Feist

Our Standards: Thomson Reuters Trust Principles.

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