ibusinesslines.com March 21, 2018

Australian economy gets investment lift, but consumers squeezed

06 December 2017, 09:40 | Kelvin Horton

The RBA has kept the cash rate at a record low 1.5 per cent ahead of the crucial Christmas period

The RBA has kept the cash rate at a record low 1.5 per cent ahead of the crucial Christmas period

Australia's gross domestic product expanded a seasonally adjusted 0.6 percent on quarter in the third quarter of 2017, the Australian Bureau of Statistics said on Wednesday.

A Westpac economist, Andrew Hanlan, has also pointed out that the jump in the annual growth rate to 2.8% has a technical reason: the quarterly profile for GDP over the past year is now 0.9%, 0.4%, 0.9% and 0.6% (which equals 2.8%).

Household consumption accounts for 55 percent of Australia's A$1.7 trillion economy.

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.

Mr Morrison highlighted strong jobs growth as one of the most positive signs in the economic figures.

Indeed, household consumption rose just 0.1 percent in the quarter, the smallest increase since late 2012.

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

Corporate sentiment is high, buoyed by strengthening global growth and robust exports, contributing to a jump in private investment over the quarter.

"This [on-year growth] is above the OECD average and puts Australia back up towards the top of the pack for major advanced economies around the world", Mr. Morrison said.

"We have now seen four consecutive quarters of investment growth, following 12 consecutive quarters of decline".

Domestic consumption is a major concern given that consumer spending represents 60% of the economy.

"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.

The previous quarter's reading of 0.8% was also revised up to 0.9%, extending the Australian economy's uninterrupted growth to 26 years without a recession.

"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.

Meanwhile, spending on electricity, gas and other fuels went up 11.5 per cent and cigarettes and tobacco went up 11.1 per cent.

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.

"It is probably too early to say that this is the beginning of a new trend, but given the unsavoury mix of headwinds facing the consumer at present, alarm bells should be ringing", Ms Auld said.

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