The economy of Australia increased at a slower than expected pace in the three months through September as imports jumped, reflecting the strength and resilience of household spending to the Reserve Bank's interest-rate increases.
Gross domestic product was up 0.6% from the second quarter, just below economists' estimates of a 0.7% gain, Australian Bureau of Statistics data showed Wednesday. Australian three and 10 year government bond yields were lower because of the slower than forecast result.
Today s data is a snapshot of the economy in the rearview mirror and covers a period when the RBA delivered a series of half-percentage point rate rises to counter spiralling consumer prices. Australians have saved more than $200 billion $135 billion during the epidemic, which has helped boost GDP.
Sean Crick, head of National Accounts at the ABS, said that households continued to increase their spending on domestic and international travel as Covid 19 travel restrictions eased. There are higher levels of spending and increases in interest on dwellings that are detracted from household saving. The report validates its decision to slow the pace of policy tightening in October after delivering four consecutive quarter percentage-point hikes from June to September.
The central bank has hiked by 3 percentage points since May to take the cash rate to a 10 year high of 3.1% as it tries to rein in inflation that is predicted to hit 8% in the current quarter.
The median estimate of economists is that money markets are pricing in a key rate of 3.6% by mid- 2023. Most observers think the economy will keep growing, albeit at a slower pace. There are growing concerns about the US and other advanced economies' recession.
Andrew Hanlan, senior economist at Westpac Banking Corp., said in a research note that a slowdown is in sight for 2023 due to high inflation and rising interest rates. There are some evidence of the negative effects of these powerful headwinds, notably weak retail sales. Retail sales declined for the first time this year in October, according to figures released last week. Consumer sentiment is in the doldrums and business confidence is sliding too. The prices of Australia's key exports — iron ore, coal and gas — have also come off from very high levels.
A fading boost from Australia reopened this year, rising services imports as holidaymakers head abroad and a expected slowdown in consumption in a high inflation environment are likely to cap growth in the period ahead, according to economists.
Governor Philip Lowe said he was confident that the economy can avoid the recession despite the RBA delivering its sharpest annual tightening since 1989. The central bank forecasts show that GDP growth slows to 2.9% at the end of the year, then to 1.4% in 2023 and 2024 due to higher borrowing costs.
The unemployment rate is expected to hold below 4% until 2024, from a current 48 year low of 3.4%.
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