Unlock the Editor’s Digest totally free
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Australia’s financial system grew at a slower fee than anticipated within the third quarter, elevating expectations of a central financial institution rate of interest lower early subsequent yr and sending the forex to its lowest stage in seven months.
Treasurer Jim Chalmers, talking at a press convention after the info’s launch on Wednesday, mentioned the 0.3 per cent progress in GDP throughout the three months to September was “very weak” and “mushy”, as excessive rates of interest stifled shopper demand and an unsure international outlook, together with a weaker Chinese language financial system, damped commerce.
The tepid progress fee was weaker than the 0.5 per cent anticipated by economists. The year-on-year enhance was 0.8 per cent, in contrast with an anticipated 1 per cent, and was the bottom in three many years outdoors the pandemic.
The Australian greenback weakened 1.1 per cent towards the US greenback after the discharge of the figures.
Items exports grew 0.9 per cent within the quarter, boosted by coal, however providers exports fell 3.6 per cent due largely to a drop in education-related journey.
Chalmers nonetheless argued that the financial system was nonetheless rising, with unemployment remaining at low ranges, inflation cooling and incomes rising.
Paul Bloxham, an economist at HSBC, mentioned measures taken by the Labor authorities to ease the price of dwelling within the nation — together with vitality subsidies and tax cuts — solely had a restricted affect on shopper spending.
“Australia has not had a recession, however progress has been sluggish for [an] prolonged interval,” he mentioned.
Gareth Aird, an economist at CBA, mentioned: “The financial system stays two‑velocity. Financial progress within the non-public sector has been non-existent over the previous two quarters. It’s only public spending that has stored GDP progress optimistic over that interval. That is an uncommon scenario and one that’s largely behind the continued interval of very weak productiveness progress.”
Chalmers argued that the most important part of elevated public spending had been on defence.
The Reserve Financial institution of Australia, which holds its final rate of interest assembly of the yr subsequent week, had forecast GDP progress of 1.5 per cent for 2024.
Aird mentioned that might require the financial system to increase by 0.8 per cent within the fourth quarter, a forecast he sees as “too robust”.
The RBA has defied hopes of an rate of interest lower in latest months, regardless of an easing of financial coverage in international locations together with New Zealand and the UK as inflation has cooled.
The weak GDP numbers heightened expectations amongst analysts {that a} fee lower would now happen early subsequent yr. The RBA has held rates of interest at 4.35 per cent since November final yr.
The central financial institution has mentioned it must see inflation drop to the midpoint of its 2 to three per cent goal vary on a sustainable foundation earlier than it considers reducing. Inflation within the three months to September dropped to 2.8 per cent.
Some economists argued that the financial knowledge launched on Wednesday was backward-looking in contrast with retail gross sales and labour market statistics that feed into the central financial institution’s forecasting. “These higher-frequency releases are portray a rosier image of progress than GDP numbers,” mentioned ING in a be aware.
