Markets

Economic growth slower than expected

Economic growth slower than expected

Australia's economy is growing at an annual rate of 2.8% after a solid pick-up in private investment in the September quarter.

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.

This led the sector to be the only one to have contracted over the past year, down by 0.7 per cent since the September quarter of 2016.

"If you can't get a stronger consumer, it's pretty hard to get momentum going in GDP", said Su-Lin Ong, Sydney-based chief economist at RBC Capital.

WA was just behind NSW in terms of economic activity through the quarter.

Analysts noted the economy would have to expand by a strong 0.9 percent this quarter, if annual growth was not to slow again.

Households also started saving more in the September quarter, a possible sign that people have become more reluctant to run down their savings to fund consumption.




Economic growth was also impacted by a 7.5 per cent decline in public investment during the quarter, as government spending returned to normal after the previous quarter's growth was inflated by the one-off South Australian government acquisition of the Royal Adelaide hospital.

Despite higher household income, household consumption was weak at 0.1 percent, in line with the retail trade estimates. The household saving ratio increased from 3% to 3.2%.

"The big concern is whether households, the engine of the economy, accept that expectations of a lift in wages growth are unjustified and it becomes necessary to adjust spending to a lower income outlook".

However economists warn the lopsided nature of expansion could be a risk to growth in coming quarters and force the central bank to delay any move on interest rates. "We believe it will", said Paul Dales, chief economist at Capital Economics.

This was the result of stronger business investment and construction, especially engineering construction.

"We have seen an increase of more than 1000 jobs a day".

The ABS observed that 17 out of 20 industry sectors recorded growth this quarter, with professional, scientific and technical services leading the way, along with health care and social assistance, and manufacturing.


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