SYDNEY (Reuters) - Australia’s economy struggled last quarter as cash-strapped consumers refused to spend, even going so far as saving a tax give-away that had been touted by the government as a major fiscal boost.
Data out Wednesday showed gross domestic product (GDP) rose 0.4% in the September quarter, missing forecasts of 0.5% and down from a revised 0.6% the previous quarter.
Annual growth edged up to 1.7%, from a revised 1.6%, but remained far below the 2.75% pace considered “trend”.
Gains were confined to just a few sectors of the economy, leaving it looking vulnerable as renewed trade tensions threaten the global outlook.
The pedestrian performance will be a disappointment to the Reserve Bank of Australia (RBA) which had tipped a rise nearer 0.7%, just the latest in a long line of over-optimistic calls.
It is also a challenge for Prime Minster Scott Morrison who had claimed a round of tax rebates doled out in July would move the economy up a gear so that a sizable fiscal stimulus was not necessary.
Instead, gun-shy households chose to squirrel the cash away and lifted their savings ratio sharply to 4.8%. A 0.1% rise in consumption was the worst since the global financial crisis.
A reversal in a long building boom also saw home construction drag on overall growth, as did business investment.
It was a particularly dour result given Australia expanded its population by 1.6% for the year, twice the pace of its developed world peers. As a result, GDP per person edged up just 0.2% in the year to September.
“This suggests that the underlying health of the economy has deteriorated further and is likely to put upward pressure on the unemployment rate,” said NAB economist Kaixin Owyong.
“That reinforces our view that further monetary easing is needed.”
The RBA has already cut interest rates three times since June, taking them to an historic low of 0.75%.
At its last policy meeting of the year on Tuesday, the central bank noted low rates were boosting home prices and lowering borrowing payments, holding out the hope this would be enough to get the economy back on track.
Markets, however, suspect the bank will be disappointed and are pricing in a further cut to 0.5% next year, with a real chance of a move to 0.25%.
If there was a bright spot to the report it was that annual GDP almost reached the A$2 trillion ($1.36 trillion) mark, at A$1.97 trillion, or about A$78,000 for each of Australia’s 25 million citizens.
Australia’s huge mining sector also enjoyed a profit windfall from high commodity prices and strong Chinese demand.
That helped fatten measures of national income, while boosting nominal GDP growth to a speedy 5.5% annual pace. The latter has been a boon for tax receipts and at least allows some scope for fiscal stimulus should the government change its mind.
($1 = 1.4736 Australian dollars)
Reporting by Wayne Cole; Editing by Sam Holmes