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Australia's economy posts strong Q2 growth

Posted by On 9:28 PM

Australia's economy posts strong Q2 growth

SYDNEY--Australia's economy grew solidly in the second quarter, supported by government infrastructure programs, strong consumer spending, and an upbeat business environment.

Gross domestic product climbed by 0.9% from the first quarter and by 3.4% from a year earlier, the Australian Bureau of Statistics reported Wednesday.

The key drivers were household consumption, construction, and mining. Coal-mining logged its biggest contribution since 2014.

Economists had expected 0.7% growth on quarter and a 2.8% rise on-year.

Still, challenges are growing for the resource-rich economy as the Trump administration in the U.S. stokes trade tensions with China and turbulence roils some emerging markets, threatening to slow world growth.

Closer to home, house prices are in retreat, with Sydney feeling most of the pain. This is fanning fears that consumer spending, a key engine of the ec onomy, will eventually buckle as the individual wealth effect fades.

There's also little light in terms of a recovery in wages growth, a problem that has lingered for a number of years.

Reserve Bank of Australia Gov. Philip Lowe remains optimistic that Australia will grow at 3% on-year this year and next, enough to keep unemployment falling and stoking inflation over time.

But the uncertain external environment, and the risk that the house price retreat could accelerate, has some economists more circumspect.

For now, the RBA has held interest rates at record lows for two year, with Mr. Lowe saying Tuesday that a tightening of the policy screws is still "way off."

Pressure is also building on homeowners with several small and large banks recently raising mortgage interest rates in response to higher wholesale funding costs.

Westpac, one of the country's big-four banks, raised its mortgage interest rate last week, with the remaining three banks expected to follow in time.

However, consumers are getting a boost from solid hiring which saw the unemployment rate approach a 6-year-low in July.

Australia's mining sector is being supported by robust commodity prices and the expansion of liquefied natural gas exports.

If trade tensions rock China's economy, Australia's exporters of iron, coal and gas are expecting the world's second largest economy to announce stimulus spending.

The Australian dollar has been falling in 2018 due to the rocky global environment. But the slide has been welcomed by the RBA and exporters.

With an election due by May, the political environment could also damp growth in the next few years.

A leadership battle in August saw Malcolm Turnbull tossed out as Prime Minister, replaced by his former Treasurer Scott Morrison. The upheavals in the ruling Liberal Party were not welcomed by voters, with support for the government p lummeting in opinion polls, raising the prospect of a Labor Government.

Write to James Glynn at james.glynn@wsj.com

Source: Google Australia | Netizen 24 Australia

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