Australia economy in rare contraction as spending falls | The Daily Star
12:00 AM, December 08, 2016 / LAST MODIFIED: 12:00 AM, December 08, 2016

Australia economy in rare contraction as spending falls

Australia's economy contracted for just the fourth quarter in 25 years, official data showed 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 told AFP. "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 told AFP.

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