SYDNEY: Australia's economy grew a disappointingly sluggish 0.4 percent last quarter as business spending dipped from record highs, knocking the local dollar lower and keeping alive the chance of further cuts in interest rates.
The quarterly rise in gross domestic product (GDP) was half that expected by analysts, though much of the miss was caused by a sharp drop in farm inventories as grains stocks were exported.
The value of all goods and services produced was put at an inflation-adjusted A$337 billion ($354 billion), for annual growth of 2.3 percent. That was much nearer forecasts thanks to upward revisions to GDP for early 2011.
The soft headline result lopped half a cent off the Australian dollar, which was already under pressure due to concerns about global growth and the euro zone debt crisis.
"It still leaves growth running at just over 2 percent, so we're doing much better than most, but it's clearly a bit of a disappointment," said Stephen Walters, chief economist at JPMorgan. "It does suggest there's some weakness elsewhere in the economy, that's for sure."
The result was a blow to the optimism of the Reserve Bank of Australia (RBA), which chose to keep interest rates steady at 4.25 percent this week in anticipation of better growth.
Earlier on Wednesday, RBA Deputy Governor Philip Lowe said the relatively high level of Australia's rates and currency were necessary to avoid repeating the inflationary busts of past mining booms.
Still, he did note there would be scope to ease further should the pressure of a high Australian dollar lead to a persistent rise in unemployment.
Official jobs figures are due on Thursday and are expected to show the unemployment rate ticked up to a still low 5.2 percent in February. Analysts suspect it would take a rise to 5.5 percent or higher to prompt a further rate cut to 4.0 percent.
Futures markets presently imply around a 38 percent probability of a cut in April, rising to 80 percent in May and almost 100 percent by June.
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