(Bloomberg) — Australia’s economy slowed last quarter as interest-rate and tax cuts failed to spur household spending, reinforcing expectations the central bank will need to resume its easing next year.
- Gross domestic product advanced 0.4% from the second quarter, when growth was revised higher to 0.6%. Economists forecast 0.5% for the three months through September
- From a year earlier, GDP expanded 1.7%, in line with estimates
The report comes a day after the Reserve Bank held interest rates at 0.75% following three cuts since June to try to revive consumption and rekindle economic growth. The Australian dollar traded lower after the data and was at 68.38 U.S. cents at 11:56 a.m. in Sydney on bets the RBA will need to resume cutting in 2020 to nudge households to spend.
Governor Philip Lowe said lower rates are boosting property and should in time lead to higher household spending and residential construction. So far, the impact of Lowe’s stimulus has come mainly through housing: national property values jumped 1.7% last month, the largest gain since 2003. Sydney and Melbourne continued to lead the rebound, with prices up 2.7% and 2.2% respectively.
“After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point,” Lowe said Tuesday. “The central scenario is for growth to pick up gradually to around 3% in 2021.”
- Government spending and exports were the biggest contributors to growth
- Dwelling construction detracted from the expansion, while household spending remained weak rising 0.1% from the previous quarter
- The savings rate jumped to 4.8% from an upwardly revised 2.7%
Australia’s exporters are benefiting from a 16% drop in the dollar since early last year and miners are reaping windfalls as China ramps up steel production — boosting demand for iron ore — as it seeks to offset trade losses. That has helped produce Australia’s first back-to-back current-account surpluses in 46 years.
Lowe last week set out the central bank’s policy options ahead, suggesting it has two more conventional cuts available before reaching the effective lower bound for rates. At that point, QE would become a possibility, although the governor insists this is unlikely.
Prominent economists including Goldman Sachs Group Inc (NYSE:).’s Andrew Boak and Westpac Banking Corp.’s Bill Evans have urged the government to bring forward tax cuts to stimulate the economy. Lowe has similarly urged greater infrastructure spending and economic reform to lift productivity.
The government has resisted loosening the purse strings as it tries to land the first budget surplus since before the 2008 financial crisis. That stalemate is only likely to harden after S&P Global Ratings warned last week that deviating from returning the books to the black could risk the AAA credit rating.
The RBA’s forecasts economic growth to accelerate: Lowe hopes that a combination of his rate cuts and government tax relief, infrastructure spending, rising house prices, an increase in mining investment and a lower currency will carry the economy through.
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