SYDNEY: Australia’s economy grew at the fastest annual pace in almost two years in the second quarter (2Q), as consumers finally started spending after multiple rate cuts, taking over from the government as the main driver of growth.
The Reserve Bank of Australia (RBA) has reduced rates three times since February to 3.6% as inflation cooled, providing some relief to households but frail business investment and global economic uncertainty will likely maintain pressure on the central bank to ease policy further.
“Today’s data are an encouraging confirmation that heightened global uncertainty did not take a heavy toll on the economy in 2Q,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
“Still, 2Q may prove to be a high watermark for growth in 2025. The June quarter benefitted from a rebound from a soft 1Q, business and consumer confidence are still a little shaky and the labour market appears to be cooling.”
The Australian Bureau of Statistics reported real gross domestic product (GDP) rose 0.6% in 2Q, topping market forecasts of a 0.5% gain. That compared with a 0.3% gain in 1Q.
Annual growth accelerated to 1.8%, from 1.4%, the fastest pace in almost two years and slightly stronger than the RBA’s forecast of 1.7% by year-end.
The forecast-topping GDP figures pushed up the Australian dollar 0.1% to A$0.6525, while three-year government bond futures fell five ticks to 96.48.
Investors pared back the chance for a rate cut in November to 92%, from almost 100% certainty before the data, while the total easing expected dropped to 45 basis points (bps) from about 50 bps.
The central bank has so far adopted a gradual and cautious approach to policy easing, having cut in February, May and August after assessing inflation data for each quarter.
The focus is now on the labour market, which has eased from full employment levels albeit at a gradual pace.
The bureau said household consumption jumped 0.9%, led by discretionary spending, adding 0.4 percentage points to GDP growth.
The rate cuts so far have lowered mortgage repayments for households, with government’s tax cuts boosting their cashflows.
The household savings ratio eased back to 4.2%, from 5.2%, as consumers chose to spend rather than save.
Tom Lay, head of national accounts at the bureau, said end of financial year sales and new product releases contributed to rises in spending on furnishings, household equipment, cars and recreation.
“Households took advantage of the proximity of Easter to Anzac day to extend their holiday break, resulting in rises in discretionary services,” said Lay. — Reuters
