Australia Q2 economy post modest growth, eases recession fears

By Stella Qiu

SYDNEY (Reuters) -Australia’s economy expanded by more than expected in the second quarter, driven by exports and public investment, while household consumption remained weak as decade-high interest rates worked to cool demand.

Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product (GDP) rose 0.4% in the second quarter, slightly beating forecasts of 0.3%. That compared with an upwardly revised 0.4% growth in the first quarter.

Annual growth was at 2.1%, above expectations for 1.8%.

The world’s 12th largest economy got a boost from net exports with the return of students and tourists and public investment, which more than offset the drag from business inventories.

Household consumption, which used to be the engine of growth – remained subdued with just a 0.1% gain and added 0.1 percentage points to growth due to spending on essential goods and services.

Consumers continued to tighten their belts as the savings ratio dropped further to 3.2%, the lowest level since 2008, suggesting the rate hikes are working to slow demand.

“We doubt that the slightly stronger figures released today will encourage the RBA to resume its tightening cycle,” said Marcel Thieliant, an economist at Capital Economics.

“The Bank is most worried about the health of consumer spending and today’s figures underline that it is ailing.”

The Reserve Bank of Australia (RBA) left interest rates unchanged for a third straight month on Tuesday as inflation cooled and growth slowed. Consumer inflation slowed to a lower-than-forecast 4.9% in July and away from last year’s peak of 8.4%.

Markets see a good chance that the RBA is done, with futures pricing in just a 30% chance of one final hike by the end of the year.

Unit labour costs continued to rise briskly with an annual growth of 7.2% in the quarter while productivity remained poor, with GDP per hour worked falling 2% from the previous quarter.

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