Weak Australian economic growth hits dollar | Australian Markets

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Australia’s financial system grew at a slower fee than anticipated within the third quarter, raising expectations of a central bank rate of interest cut early subsequent yr and sending the currency to its lowest stage in seven months.

Treasurer Jim Chalmers, talking at a press convention after the info’s release on Wednesday, stated the 0.3 per cent growth in GDP during the three months to September was “very weak” and “soft”, as high rates of interest stifled client demand and an unsure world outlook, together with a weaker Chinese language financial system, damped trade.

The tepid growth fee was weaker than the 0.5 per cent anticipated by economists. The year-on-year increase was 0.8 per cent, in contrast with an anticipated 1 per cent, and was the bottom in three many years exterior the pandemic.

The Australian greenback weakened 1.1 per cent in opposition to the US greenback after the release of the figures.

Items exports grew 0.9 per cent within the quarter, boosted by coal, however companies exports fell 3.6 per cent due largely to a drop in education-related journey.

Chalmers nonetheless argued that the financial system was nonetheless growing, with unemployment remaining at low ranges, inflation cooling and incomes growing.

Paul Bloxham, an economist at HSBC, stated measures taken by the Labor authorities to ease the price of dwelling within the nation — together with vitality subsidies and tax cuts — solely had a restricted affect on client spending.

“Australia has not had a recession, but growth has been sluggish for [an] extended period,” he stated.

Gareth Aird, an economist at CBA, stated: “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 largest element of elevated public spending had been on defence.

The Reserve Financial institution of Australia, which holds its final rate of interest assembly of the yr subsequent week, had forecast GDP growth of 1.5 per cent for 2024.

Aird stated that may require the financial system to develop by 0.8 per cent within the fourth quarter, a forecast he sees as “too strong”.

The RBA has defied hopes of an rate of interest cut in current months, regardless of an easing of financial coverage in international locations together with New Zealand and the UK as inflation has cooled.

The weak GDP numbers heightened expectations amongst analysts that a fee cut would now happen early subsequent yr. The RBA has held rates of interest at 4.35 per cent since November final yr.

The central bank has stated it must see inflation drop to the midpoint of its 2 to three per cent goal vary on a sustainable foundation earlier than it considers chopping. Inflation within the three months to September dropped to 2.8 per cent.

Some economists argued that the financial information launched on Wednesday was backward-looking in contrast with retail gross 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,” stated ING in a notice.