Australia: Annual growth nears 10-year low in Q2; quarterly growth remains stable
September 4, 2019
According to figures released by Australia’s Statistical Institute (ABS) on 4 September, GDP expanded 0.5% quarter-on-quarter in seasonally-adjusted terms in Q2, following a revised increase of the same magnitude in the first quarter (previously reported: +0.4% quarter-on-quarter). The result hit market analysts’ expectations and underlined stable quarterly growth. That said, on an annual basis, the economy grew just 1.4%, down from Q1’s revised 1.7% (previously reported: +1.8% year-on-year) and representing the weakest expansion since Q3 2009.
A sharper contraction in fixed investment weighed on the domestic economy. Fixed investment plunged 1.7% (Q1: -1.0% quarter-on-quarter), as a protracted downturn in the real estate market caused housing investment to plummet in the quarter. Moreover, consumer spending remained subdued (Q2: +0.4% qoq; Q1: +0.3% qoq), weighed on by declining house prices, soft wage growth and high levels of debt, which was only partly offset by sustained job gains in April and May. On the other hand, government spending jumped in the second quarter (Q2: +2.7% qoq; Q1: +0.9% qoq), partly due to the government loosening the purse strings ahead of May’s general election.
The external sector, meanwhile, strengthened. Exports rose 1.4% in Q2 (Q1: +1.9% qoq), on the back of rising foreign sales of commodities, and imports fell 1.4% in Q2, after dipping 0.2% in Q1. Thanks to a combination of higher exports and falling imports, Australia recorded its first current account surplus in Q2 since 1975.
GDP growth will decelerate this year as falling residential construction limits fixed investment and soft wage hikes and a bulky household debt restrain private consumption. Meanwhile, potential weakness in China’s economy and a possible escalation in global trade disputes are the key risks to growth in Australia.