Friday, 20 July, 2018

Economy Slows as Corporate Australia Parties but Consumers Stay Home

Non-dwelling construction such as work on the new Perth Stadium was the biggest contributor to growth through the quarter Economy Slows as Corporate Australia Parties but Consumers Stay Home
Nellie Chapman | 06 December, 2017, 09:38

Australia's economy expanded at the fastest annual pace in over a year last quarter thanks to a long-awaited jump in business investment, though marked weakness in household spending cast a cloud over the outlook for growth.

The economy grew 0.6% in the third quarter from the second quarter, and by 2.8% when compared with a year ago, the Australian Bureau of Statistics said Wednesday.

The result just missed market forecasts of growth of 0.7 percent for the quarter and nudged the local dollar down a quarter of a cent to $0.7580.

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But economists say the growth figures are disappointing because the strength in private investment has masked worryingly weak household consumption.

The Australian dollar slid about a quarter of a US cent as market participants essentially lowered their expectations that Australia's central bank-already in a lengthy holding pattern-will take action on interest rates anytime soon.

While wages increased over the three months, household consumption was weak at 0.1%, leading to a rise in the savings ratio for the first time in five quarters, they added.

Treasurer Scott Morrison said public investment was strong on an annual basis.

Worldwide trade did not contribute to third quarter economic growth due to a decline in commodity prices, while housing investment added nothing to growth either.

"For us, the key in the core of the economy is domestic demand and it's hard to see how momentum picks up there when you've got so many challenges for both consumers and household", Ong added.

Seventeen out of 20 industries recorded positive growth, led by the professional, scientific and technical services, healthcare and social assistance, and manufacturing sectors.

Bill Evans, chief economist at Westpac, said pressure is building on consumers and it is forcing a change in spending patterns that threatens to choke off growth.

The previous quarter's reading of 0.8% was also revised up to 0.9%, extending the Australian economy's uninterrupted growth to 26 years without a recession.

The Treasurer also outlined a small lift in wages growth, a key component to sustaining economic growth.

Meanwhile, spending on electricity, gas and other fuels went up 11.5 per cent and cigarettes and tobacco went up 11.1 per cent.

Monthly retail sales released Tuesday showed a return to stronger consumption at the start of the fourth quarter after a dismal winter of spending Down Under, but economists pointed out that the gains were largely a statistical rebound.

"Consumers are indeed feeling the strain", Mr Bowen said.