Australia’s resource rich economy outperformed its developed world peers again in the June-September quarter, but growth slowed as the federal and state governments reined in spending to meet promised budget targets.
The economy expanded 0.5 per cent in the third quarter, with the mining sector providing the main boost. That followed 0.6 per cent growth in the second quarter and 1.3 per cent between January and March.
Compared with a year ago the economy grew 3.1 per cent, which was in line with market expectations but ahead of every other major advanced economy.
But it was the weakest performance since early 2011 when massive flooding in Queensland hit activity, and it comes as Australia’s resource investment boom approaches its peak.
On Tuesday, the Reserve Bank of Australia reduced its official cash rate to 3 per cent, a level last seen during the depths of the financial crisis in 2009, in an effort to foster stronger growth in the non-mining sectors of the economy.
The RBA expects resource investment to peak at around 8 per cent of GDP “sometime” in 2013, although many commentators believe it will happen sooner and at a lower level.
Several high profile resource projects have either been delayed or abandoned in the past six months because of weakening commodity prices and the strength of the Australian dollar, which remains above parity with its US counterpart.
JPMorgan chief economist Stephen Walters said the latest data showed that the annualised growth rate – running at about 2 per cent based on the latest data – was well “below trend”.
“The main drag on the economy was the government sector, which sliced 0.4 percentage points off GDP growth,” he noted. “This is not surprising given the significant austerity being implemented at both the state and federal level.”
Australia’s ruling Labor government has pledged to return the country’s budget to a slim surplus in the fiscal year to June 2013. However, the promised surplus is being threatened by lower taxes from the mining sector.
Mr Walters said the report showed the Australian economy had been more “one speed” than “multi-speed” in the past quarter, with virtually all of the growth coming from “adding piles of dirt ready for export”.
Despite a series of rate cuts by the RBA since late 2011, activity has remained muted in the non-mining sectors of the economy. Policy makers are banking on construction of new homes and apartments to pick up the slack as resource investment cools.
Analysts said the RBA would have been heartened by the 3.7 per cent increase in new housing construction in the three months to September, following a 7 per cent decline over the pervious five quarters.
But Bill Evans, chief economist at Westpac Institutional Bank, said any satisfaction would have been more than offset by “tepid growth” in household spending, which was at the lowest level since the March quarter of 2010.
“Lower interest rates will support income growth and a recovery in the housing market will help employment and confidence. However, this report emphasises that it will be a considerable challenge to stimulate household spending,” added Mr Evans.
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