>CNBC.com reports that the Australian economy grew at its slowest pace in over three years last quarter as weakness in consumption and housing overshadowed strength in business and public spending, reinforcing the case for lower interest rates. This sounds like the American economy a few months ago could be a signal that Australia is heading into a recession after more than 15 years of growth.
The Reserve Bank of Australia (RBA) has also shifted its focus from trying to control inflation to focus on economic growth by trimming it its key cash rate by 25 basis points (1/4 percent) to 7.0 percent on Tuesday, the first easing in seven years, saying the economy was cooling fast enough to restrain inflation. “Today’s GDP data certainly won’t dampen expectations of more rate cuts to come,” added Blythe. The US cut rates 8 times (to a low of 2%) to try and forestall a major economic slowdown – and it is debatable whether it worked. Analysts in a Reuters poll see interest rates at 6.75 percent by year-end and a gradual decline to 6.25 percent within a year.
“It’s confirmed all those expectations that the economy has slowed, and certainly validates the rate cut we saw yesterday,” said Michael Blythe, chief economist at Commonwealth Bank.
Australian Gross domestic product (GDP), or the value of all goods and services, rose 0.3 percent in the second quarter, just below forecasts of a 0.4 percent increase. That compared to a revised 0.7 percent rise in the first quarter and was a big step down from the blistering pace seen last year. Growth for the year to June slowed to 2.7 percent from 3.3 percent in the first quarter, though that still beat most other industrialized countries.
Recent data suggests Australia’s heavily indebted households continued to struggle in the current quarter, with the deadening effect of the global credit squeeze driving credit growth to its lowest in two decades. Industry figures out on Wednesday showed vehicle sales slumped 10.1 percent in August, on top of a 6.3 percent drop in July, hinting at very soft consumer spending this quarter.
Overall, Australia’s GDP amounted to an inflation-adjusted A$260.95 billion (US$217 billion) in the second quarter and A$1.04 trillion for the 12 months to June, or A$48,890 for every man, woman and child in the country.
Most of the weakness was concentrated in the household sector where rising living costs, high interest rates and falling asset prices have hammered confidence. Household consumption, which accounts for nearly 60 percent of GDP, fell 0.1 percent in the quarter. That was the weakest result since 1993 and a big turnaround from last year’s average growth of 1.1 percent.
In contrast, surging export prices saw the country’s terms of trade — what it gets for exports compared to what it pays for imports — jump 13.1 percent, the biggest rise in 35 years. Treasurer Wayne Swan seized on this as a reason for optimism. “While Australia is not immune from global difficulties, we are better placed than most other countries to withstand the fallout,” Swan told reporters. I think this is a case of a politician clutching at straw’s, rather than admitting things are not looking too good for the foreseeable future.
What are your thoughts? Do you think Australia is headed into a recession, or are we already in one?
Related posts:
- Australia First G-20 Nation to Raise Interest Rates as Nation Upsurps Larger Peers From Bloomberg, an article that made me proud of my...
- Australian Economy and Dollar on the Up and Up! Worth reading this article from Bloomberg on the booming Australian...
- Australian Unemployment Rate Falls From Marketwatch, good news on the Aussie job front. Once...
Related posts brought to you by Yet Another Related Posts Plugin.
