Australia’s economy is growing at a weaker rate than expected, at only 2.7% in 2014 to the end of September, according to the Australian Bureau of Statistics (ABS).
GDP, in seasonally adjusted chain volume terms, grew just 0.3% in the September quarter 2014. Most market forecasts were in the 0.7%/0.8% range.
The 2.7% annual rate is well below the June quarter annual number of 3.2% and weaker than the decade average growth of 2.9%.
The Australian dollar dropped below 84 US cents on the news.
Felicity Emmett, Senior Economist at the ANZ bank, says the main area of surprise was weaker-than-expected business investment spending.
This came in at a negative 0.7% for the quarter compared to a positive 0.5% the previous three months.
Household consumption growth, up 0.5%, was also slightly softer than forecast.
She says the income measures of GDP were even weaker than the headline number suggests.
Nominal GDP fell 0.1% for the quarter and is up only 2.7% for the year, while real gross domestic income (which adjusts for the terms of trade) fell 0.4% for the quarter and was only 0.8% higher over the year.
“This weakness in income will flow through to softer growth in the real economy, and was the main reason for ANZ’s recent downgrade to its growth forecasts,” she says.
“Soft income growth will weigh on profits, wages, and public revenues, and flow through to softer consumer spending, business investment and public demand.”
The drag from the wind back in mining investment still has a long way to run and is likely to be much sharper over coming quarters as large-scale LNG projects approach completion.
The recovery in non-mining activity is coming through, but more slowly than previously thought, she says.
Despite the GDP number today, the economy is still growing and broadly as the Reserve Bank had expected, says Craig James, Chief Economist at CommSec.
The Reserve Bank is expecting annual growth to slow to 2.5% in the December quarter and will probably be broadly around 2.5% to 2.75%.
“In short, the economy in evolving as expected, so the Reserve Bank is unlikely to be tempted to cut rates again,” says James.
CommSec expects the economy to grow by around 3% over 2014-15 with the pace of growth expected to accelerate in the second half of the 2015 calendar year.
Some of the reaction to the number:
Ewwww. 0.3% GDP
— Greg Jericho (@GrogsGamut) December 3, 2014
Over past 6 years, real GDP growth has averaged just 2.5% – no wonder unemployment is rising. RBA has not done well http://t.co/hKv0mLYnIx
— Stephen Koukoulas (@TheKouk) December 3, 2014