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Australia's economy hits 3.4% annual growth rate, exceeding expectations

Posted by On 10:00 PM

Australia's economy hits 3.4% annual growth rate, exceeding expectations

Australian economy Australia's economy hits 3.4% annual growth rate, exceeding expectations

Economy grew by 0.9% in June quarter, which was stronger than 0.7% forecast

Australia’s economy grew by 0.9% in the June quarter.
Australia’s economy grew by 0.9% in the June quarter. Photograph: Dan Himbrechts/AAP

Australia’s economy is growing at a strong annual rate of 3.4%, after better-than expected growth in the June quarter.

Figures show the economy grew by 0.9% over April, May, and June, beating expectations of 0.7% growth, in seasonally adjusted terms.

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It has pushed the annual rate up from 3.1% in the March quarter, which will please the Reserve Bank and Treasury, and which has been welcomed by new treasurer Josh Frydenberg.

“This is the strongest growth since the height of the mining boom in 2012,” Frydenberg said on Wednesday.

“By any calculation the Australian economy is strong, the fundamentals are good, the momentum has continued, and these are an encouraging set of numbers.”

The Australian dollar spiked 0.5% to US72c after the release of the figures.

Paul Dales, the chief economist of Capital Economics, said the first half of this year had been “very good” for the economy.

But he cautioned against celebrating too much, saying the 11-month decline in house prices had yet to bite properly.

“Our big concern is that at some point households will falter in the face of low income growt h, falling house prices, tightening credit conditions and rising mortgage rates,” he wrote to clients on Wednesday.

“The further fall in the household saving rate from 1.6% to a post-GFC low of 1% indicates they may have overextended themselves. The global environment is becoming less supportive too.

“As the RBA has been expecting the economy to perform well, these data don’t mean that the RBA is suddenly going to rush to raise interest rates. But the markets may start to reconsider their view that interest rates won’t rise until sometime in 2020.”

In the June quarter, growth in domestic demand accounted for over half the growth in GDP.

Domestic demand increased by 0.6%, driven by 0.7% growth in household spending reflecting strong sales of food, recreation and culture, and furnishings and household equipment.

Household consumption has grown 3% through the year, accompanied by a large decline in the household savings ratio.

The household savings ratio fell from 1.6% to 1% of disposable income - its lowest level since December quarter 2007 - in the June quarter.

Frydenberg put a positive spin on the decline in household savings, saying it was important to remember people were still saving.

He also pointed out wages and salaries had risen 0.7% in the June quarter, to be 4.8% higher through the year, driven by increasing employment.

However, Westpac economist Andrew Hanlan said the wages data were more disappointing than they seemed.

He said wages themselves only increased 0.1% in the quarter, to be 1.8% higher over the year.

“With the household consumption deflator at 1.5% for the year, this implies that real wages growth remains weak at only 0.3% for the year,” he said.

The household consumption deflator is a measure of inflation. It tracks the prices paid for all consumer goods, rather than just a basket of goods.

If nominal wages are growing at 1 .8%, and inflation is running at 1.5%, the “real” value of growth in wages is just 0.3%, which is exceptionally weak.

Economists say the ongoing weakness in wages explains why Australians are continuing to draw down on savings to fund consumption.

They also say for households to sustain consumption at current levels they will need wages growth to lift noticeably.

“With Australia’s savings ratio already at historically low levels and wages likely to increase only very gradually, it appears the most likely outcome is for households to tighten the purse strings and for spending to slow,” JP Morgan economist Tom Kennedy said.

“Tighter credit conditions exacerbate this dynamic.”

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  • Australian economy
  • Australian politics
  • Housing affordability
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Source: Google Australia | Netizen 24 Australia

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