Aussie economy shrinks as spending falls

Construction personnel work on a building site in central Sydney on December 7, 2016. Australia's economy contracted for just the fourth quarter in 25 years, official data showed, slowing the annual growth rate to 1.8 percent amid weaker government and consumer spending on top of softer trade figures. / AFP PHOTO / WILLIAM WEST


Sydney / AFP

Australia’s economy contracted for just the fourth quarter in 25 years, official data showed on Wednesday, slowing the annual growth rate to 1.8 percent amid weaker government and consumer spending on top of softer trade figures.
The Australian Bureau of Statistics reported a 0.5 percent contraction for the September quarter. It was the weakest figure in eight years — despite the recent upswing in commodity prices — and underlined the challenges facing a country in transition from a mining investment boom.
“The contraction in real GDP (gross domestic product) recorded in the September quarter is not just a reminder, not just a wake-up call or a warning about being complacent when it comes to economic growth,” Treasurer Scott Morrison told reporters in Canberra.
“It is a demand to support economic policies that drive the investment needed… to survive in a tough and competitive environment.” The latest figures — at the lower end of forecasts — came after a stellar second-quarter report that saw the economy expand by a revised 0.6 percent for 3.1 percent year-on-year, to mark a quarter of a century that Australia has avoided recession.
The Australian dollar fell about half a US cent to 74.25 cents. “It was even weaker-than-expected, and consumer (spending) was a big disappointment,” JP Morgan economist Ben Jarman said. “We are of the view that the RBA (Reserve Bank of Australia) is going to have to ease to keep growth at a satisfactory level.”
Government investment fell by 0.2 percent for July-September, while household spending grew by a slow 0.4 percent. Net exports detracted 0.2 percentage points from growth. The central bank on Tuesday held interest rates at a record-low 1.50 percent, with governor Philip Lowe noting “some slowing in the year-ended growth rate is likely, before it picks up again”.
The Australian economy has charted a bumpy path since the end of the mining investment boom, with the data showing that resources spending was continuing to fall while business investment was weak. The RBA has eased rates by 300 basis points since November 2011 — including two cuts this year — to support growth in non-resources industries.
The focus now shifts to the October-December figures. Two consecutive quarters of negative growth would meet the technical parameters for a recession, but analysts say the latest disappointing data is more likely to be a one-off than a sign of sustained weakness.
Construction and government spending look set to improve for
the next quarter, while rebounding commodity prices should feed through to better export numbers, Westpac senior currency strategist Sean Callow said.
Australians’ willingness to spend has been dampened by slow wage growth while the third-quarter period also coincided with the fiercely fought federal election and a protracted vote count that may have left consumers unwillingly to loosen the purse strings, he added.
“Almost everything that could have gone wrong has gone wrong in the same quarter, which at least raises the hope that there’s a sharp rebound in Q4,” Callow said. AMP Capital chief economist Shane Oliver expected Australia to avoid a recession, although growth was “still likely to be fragile and constrained”.
Inflation also remains well off the RBA’s target range of 2.0-3.0 percent, giving the central bank scope to ease further. Despite the negative quarter, Australia’s economy was still powering forward in comparison to developed world peers, Morrison said.
“Our annual real growth is still higher than six out of the world’s G7 economies, second only to the United Kingdom. Higher than the US, Canada, Japan, Germany, and higher than the OECD average,” he said.

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