April 22, 2018

Australian economy gets investment lift, but consumers struggle

06 December 2017, 09:39 | Melvin Schneider

Treausuer lauds economic growth figures

Australia's economic expansion has grown just short of three per cent in the September quarter

Australia's economy grew at a slower pace than expected in the third quarter, feeding into economists' concerns about a lopsided expansion as businesses chalk up strong profits while consumers keep their wallets tightly closed.

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

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

The composition of that latest national accounts was not good, as most components outside of private investment were soft, JP Morgan's chief economist for ANZ Sally Auld, said.

The improved annual growth figure was assisted by the negative September quarter data from previous year dropping out, and it takes Australia close to what would be considered average levels of economic expansion.

Economists had forecast growth of 0.7% over the quarter and 3.0% over the year, and had indicated that the yearly figure would offer a somewhat flattering picture of the economy helped by a low base of comparison last year.

The Australian dollar has dropped sharply on the result, from 76.13 United States cents ahead of the 1130 AEDT release to 75.84 U.S. cents at 1132 AEDT.

The Australian dollar slid about a quarter of a USA 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.

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Aussies were cutting back spending on household furnishings and equipment, hotels, cafes and restaurants, clothing and footwear and buying new cars.

Households also pulled back on renovations. Wage growth is crawling at the slowest rate ever, while the unemployment rate is still up around 5.5 percent.

Non-dwelling construction added 0.9 percentage points to growth during the quarter, more than offsetting a 0.1 percentage point decline from residential building.

"This print will come as a major disappointment for the RBA", Westpac's chief economist, Bill Evans, said.

"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", he said.

"The jobs market should remain strong, providing much-needed support to household incomes growth", he said.

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

"Business conditions, as surveyed, are at their highest level in 20 years. our enterprise tax plan is a key part of this, which is why it must be supported".

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