Australia’s economy slows to decade low, rebound proving elusive

SYDNEY: Australia's much-vaunted economy grew at its slowest pace in a decade last quarter as cash-strapped consumers went on strike, an urgent argument for more monetary and fiscal stimulus as headwinds mount globally.

Data out on Wednesday showed gross domestic product (GDP) rose just 1.4% in the June quarter, from a year earlier, matching the worst of the global financial crisis and well short of the 2.75% considered "trend".

The downbeat report poses a challenge for Prime Minster Scott Morrison who won election in May largely based on a pledge that growth would be stronger on his watch.

Speaking ahead of the data, Morrison conceded growth was "soft" but argued that putting the budget back into surplus was more important than any attempt at pump priming.

The Reserve Bank of Australia (RBA) has called for fiscal action, as it cut interest rates in both June and July to reach an historic low of 1%.

The monetary easing has sparked a much-needed revival in house prices, but home construction remains in a deep hole and consumer spending has yet to show any recovery.

The central bank concluded its September policy meeting this week by saying it would ease further if needed, and highlighted new risks from the escalating Sino-U.S. trade dispute.

Investors already believe a quarter-point cut by November is a done deal, with another pencilled in by March.

"While we think this will be the low point for GDP growth in annual terms, we continue to see headwinds in the form of a constrained consumer, a downtrend in dwelling construction and a more challenging external environment, and this keeps RBA easing in play," said Nomura economist Andrew Ticehurst.

GROWTH NARROWLY BASED

If there was a bright spot in Wednesday's numbers it was that quarterly growth of 0.5% matched market forecasts, when there had been fears it would be even weaker. That was enough to see the local dollar firm slightly to $0.6778.

Over the year to June, gross domestic product (GDP) amounted to A$1.95 trillion ($1.32 trillion) in current dollars, or about A$77,000 for each of Australia's 25 million citizens.

Yet almost all the growth came from government spending and exports, with domestic consumption hamstrung by miserly wage gains and a sharp downturn in home building.

In all, public spending added 1.3 percentage points to GDP growth in the year to June, with net exports another 1.2 percentage points.

Household spending, usually a powerhouse of the economy, added just 0.8 percentage points to growth, while home construction shaved half a percentage point.

That was a particularly dismal performance given Australia expanded its population by 1.6% for the year, twice the average pace of its developed world peers.

As a result, GDP per person actually shrank 0.2% in the year to June, something typically only associated with recessions.

While households were struggling, Australia's huge mining sector enjoyed a massive profit windfall from high commodity prices and strong Chinese demand.

That helped fatten measures of national income, while boosting nominal GDP growth to a speedy 5.4% annual pace. The latter has been a boon for tax receipts and a potential source of fiscal stimulus. - Reuters

source https://www.thesundaily.my/business/australia-s-economy-slows-to-decade-low-rebound-proving-elusive-AG1329938