Australia GDP Up 0.5% in Second Quarter, Meeting Expectations

Bloomberg

Published Sep 03, 2019 09:38PM ET

Updated Sep 03, 2019 10:35PM ET

Australia GDP Up 0.5% in Second Quarter, Meeting Expectations

(Bloomberg) -- Australia’s economic growth remained subdued in the three months through June, underpinned mainly by government spending and trade.

  • Gross domestic product advanced 0.5% from the first quarter, the statistics bureau said Wednesday in Sydney. Economists forecast 0.5%
  • From a year earlier, it expanded 1.4%, also matching estimates
  • Government spending grew 2.7%, adding 0.5% pt; exports grew 1.4%, adding 0.3% pt
  • Dwellings investment fell 4.4%, subtracting 0.2% pt; non-dwelling construction slumped 5.9%, cutting 0.3% pt
  • The savings rate fell to 2.3% from a revised 3%
  • Australian dollar traded at 67.81 U.S. cents versus 67.64 pre-data
The report comes a day after the Reserve Bank held interest rates at a record-low 1% following back-to-back cuts in June and July to try to revive household spending -- which accounts for about 60% of GDP -- and, in turn, the economy. Governor Philip Lowe is trying to drive down unemployment in order to fuel faster wage growth and higher inflation.

So far, the impact has come mainly through the housing market, with property prices rising the most in almost 2 1/2-years in August. Meanwhile, uncertainty reigns across much of the world with the U.S.-China confrontation hurting confidence and deterring multinationals from major investments as they wait to see how the trade war plays out.

Australia’s exporters are benefiting from a 17% drop in the Aussie dollar since early last year and miners are enjoying massive windfalls as supply problems and record Chinese steel production sent the iron-ore price soaring. The trade gains underpinned the nation’s first current-account surplus in 44 years.

Markets predict Lowe will cut rates twice more to 0.5%, and the RBA’s forecasts for economic growth rising to 2.75% next year are premised on such a move. Yet Lowe still hopes that a combination of his earlier cuts and government tax relief, rising house prices, infrastructure and mining investment and a lower currency will carry the economy through without further easing.

Lowe said last month “there are signs the economy may have reached a gentle turning point.” But even if the domestic picture does improve, global political turmoil is prompting his counterparts across the world to ease policy. Australia is unlikely to be able to escape doing the same, and otherwise could see some unwanted currency strength.