Australian Economy Posts Weakest Growth Since Early 1990s
Excluding the Covid-19 pandemic period, annual growth was the lowest since 1992
SYDNEY—Australia’s commodity-rich economy recorded its weakest growth momentum since the early 1990s in the second quarter, as consumers and businesses continued to feel the impact of high interest rates, with little expectation of a reprieve from the Reserve Bank of Australia in the near term.
The economy grew 0.2% in the second quarter from the first, with annual growth running at 1.0%, the Australian Bureau of Statistics said Wednesday. The results were in line with market expectations.
It was the 11th consecutive quarter of growth, although the economy slowed sharply over the year to June 30, the ABS said.
Excluding the Covid-19 pandemic period, annual growth was the lowest since 1992, the year that included a gradual recovery from a recession in 1991.
The economy remained in a deep per capita recession, with gross domestic product per capita falling 0.4% from the previous quarter, a sixth consecutive quarterly fall, the data showed.
A big area of weakness in the economy was household spending, which fell 0.2% from the first quarter, detracting 0.1 percentage point from GDP growth.
With population growth running at around 2.5% a year, per capita spending declined by around 2.0% over the same period, according to the ABS data.
Helping to lift the gloom, government spending rose 1.4% over the quarter, due in part to strength in social-benefits programs for health services, the ABS said.
The soft growth report comes as the RBA continues to warn that inflation remains stubbornly high, ruling out near-term interest-rate cuts.
RBA Gov. Michele Bullock said last month that near-term rate cuts aren’t being considered.
Money markets have priced in a cut at the end of this year, while most economists expect that the RBA will stand pat until early 2025.
Treasurer Jim Chalmers has warned this week that high interest rates are “smashing the economy.”
He told reporters after the data that without growth in government spending over the quarter, the economy would have contracted.
Still, with income tax cuts delivered at the start of July, and the government announcing handouts to every household while offering rebates to subdue rental and electricity cost increases, there are some expectations that consumers will be in a better position to spend in the third quarter, reviving the economy to some degree.
Sally Auld, chief investment officer at wealth manager JBWere, said that while the weakness in consumer spending will alarm the RBA, it is too soon to rule out a recovery as government stimulus lifts consumption.
“Let’s see what happens,” she added.
But the economy has clearly slowed to a crawl.
“Output has now grown at 0.2% for three consecutive quarters now. That leaves little doubt that the economy is growing well below potential,” said Abhijit Surya, economist at Capital Economics.
“But if activity does continue to disappoint, the RBA could well cut interest rates sooner,” Surya added.