(Bloomberg) — Australia’s economic growth remained sluggish in the three months through September as a surge in government spending helped overcome weak exports and restrained consumer demand.
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Gross domestic product advanced 0.3% from the prior quarter, below economists’ estimate for a 0.5% increase, Australian Bureau of Statistics data showed Wednesday. From a year earlier, the economy grew 0.8% compared with a forecast 1.1%.
Growth was driven by public sector expenditure with government consumption and public investment both contributing, Katherine Keenan, ABS head of National Accounts, said in a statement. GDP per capita slid for a seventh consecutive quarter, she added.
The Australian dollar fell 0.3%, while policy sensitive three-year bond yields pared their gains after the data. Swaps traders boosted bets on a rate cut at the RBA’s April meeting to about a 71% chance, up from around 60% yesterday.
Annual growth has slowed markedly from a decade average of 2.3% and today’s data suggest that demand-driven inflation pressures might be abating, opening the door for the Reserve Bank to begin easing next year. The cash rate is currently at a 13-year high of 4.35% and money market pricing implies a first cut will occur in May.
The RBA predicts the annual expansion will accelerate to 1.5% by year’s end before picking up to 2.3% in 2025.
Bloomberg Economics expects growth will remain sluggish, and continue contracting in per-capita terms as the cumulative impact of higher rates damps household demand and housing-related activity.
Economists at three of Australia’s four major banks expect the RBA will begin cutting rates in May 2025, though the ensuing easing cycle is likely to be shallow. By comparison, the Federal Reserve may to cut for a third straight meeting this month.
Wednesday’s data showed the household savings ratio climbed to 3.2% as Australians saved windfall cash from tax cuts and government cost-of-living support measures.
Household spending was little changed and contributed nothing to third-quarter GDP growth. A key factor was electricity and gas spending as energy bill relief rebates were treated as a shift from household to government expenditure in the national accounts.
Making the RBA’s inflation fight trickier is Australia’s poor productivity growth, economists said, with today’s data showing GDP per hour worked fell again last quarter. That’s a concerning trend for policymakers given productivity growth is crucial to higher living standards and sustainable pay rises.