SYDNEY: Australia’s economy grew at the slowest annual pace since the pandemic in the third quarter, disappointing hopes for a rebound as government spending did all of the heavy lifting.
Investors reacted by pushing the Australian dollar 0.3% lower to $0.6468, and markets ascribed a slightly higher chance of a rate cut next year, although a first easing is still not fully priced in until May.
Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product rose 0.3% in the September quarter, missing market forecasts of 0.4%.
Annual growth slowed to 0.8%, from 1.0% the previous quarter, marking the slowest pace since late 2020.
The Reserve Bank of Australia had expected economic growth would pick up to 1.5% by the end of the year as tax cuts flowed through to households’ wage pockets and consumers became more confident that interest rates would not increase again.
However, the surprisingly weak third quarter result is putting that in jeopardy. For the quarter, government spending made a vital contribution to growth, but household spending, which accounts for half of GDP, added nothing to GDP.
GDP per capita dropped another 0.3%, down for the seventh straight quarter.
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The central bank has kept interest rates steady at a 12-year high of 4.35% for the past year and signalled little inclination to ease anytime soon, in part due to the surprising resilience of the labour market.
Headline consumer price inflation slowed sharply to 2.8% in the third quarter, mainly due to government rebates on electricity bills.
Core inflation was more persistent at 3.5%, still above the RBA’s target range of 2% to 3%.
Financial markets are pricing in almost no chance of a cut in the 4.35% cash rate at the RBA’s next meeting on Dec. 10.
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