Australia’s Weakest Consumption Since 2010 Slows Growth: Economy

Australia’s Economic Growth Slows as Government Cuts Spending
A woman is silhouetted as she walks past a view of the central business district in Sydney. Photographer: Brendon Thorne/Bloomberg

Australia’s economy slowed last quarter on the weakest consumer demand in 2 1/2 years and tighter government spending, validating the central bank’s decision to cut interest rates.

Third-quarter gross domestic product advanced 3.1 percent from a year earlier after a revised 3.8 percent expansion in the April-June period, a Bureau of Statistics report released in Sydney today showed. That matched the median of 25 estimates in a Bloomberg News survey. Growth was 0.5 percent from the previous three months, when the quarterly gain was 0.6 percent.

The report covers a period when companies including BHP Billiton Ltd. scaled back mining projects in response to lower commodity prices. Reserve Bank of Australia Governor Glenn Stevens lowered rates four times this year to help support consumption and housing as an elevated currency extended a slump in manufacturing and services, and the government sought spending cuts to eliminate a budget deficit.

The report “confirmed a loss of momentum in the Australian economy,” said Bill Evans, chief economist at Westpac Banking Corp., the nation’s second-largest lender. “The growth pulse has slowed to a below-trend pace, consistent with the modest upward trend in the unemployment rate.”

The local dollar fell after the report and was trading at $1.0473 at 1:24 p.m. in Sydney compared with $1.0477 before the release. The yield on three-year government debt was 2.61 percent, down one basis point from yesterday. Australian stocks pared gains, with the S&P/ASX 200 Index 0.1 percent higher.

Consumer Spending

Household consumption rose 0.3 percent in the third quarter, adding 0.2 percentage point to GDP growth, after a 0.7 percent gain in the April-June period, today’s report showed. That was the weakest since the first quarter of 2010, the data showed.

Machinery and equipment advanced 6.2 percent last quarter, adding 0.4 point to the expansion, it showed. Among industries, mining grew 4.5 percent, making it the biggest contributor to growth. Government spending fell 0.4 percent, subtracting 0.1 point, the report showed.

“Investment outside of mining still hasn’t shown any signs of life yet,” said Kieran Davies, chief economist at Barclays Capital in Sydney who predicted today’s quarterly increase. “The RBA will still just be more focused on making sure the rest of the economy picks up.”

He said the central bank would be relieved that the report showed easing wage pressure and improved productivity after faster-than-expected inflation last quarter.

Monetary Easing

The RBA yesterday cut its benchmark rate to 3 percent, matching the half-century low set during the 2009 global recession, as hiring falters and an elevated currency hurts industries such as manufacturing and tourism.

The nation’s household savings rate fell to 10.6 percent in the three months through September from a revised 10.9 percent in the second quarter, today’s report showed.

Australian help-wanted notices dropped for an eighth straight month in November, sliding 2.9 percent, an Australia & New Zealand Banking Group Ltd. report showed this week. Economists predict a government report tomorrow will show the unemployment rate rose to 5.5 percent last month.

Elsewhere in Asia, Taiwan and the Philippines reported inflation eased for a third month in November from a year earlier. China’s services industries expanded at a slower pace last month, a purchasing managers’ index from HSBC Holdings Plc and Markit Economics showed. A similar index will be released in India.

Euro Economy

A final reading of a composite purchasing managers’ index may reiterate euro-area services and manufacturing shrank for the 10th month in November, while retail sales for the euro region probably dropped 0.8 percent in October from a year earlier, surveys showed. Poland’s central bank will reduce borrowing costs for a second month today, a separate survey showed.

In the U.S., economists predict the Commerce Department will say total factory orders stagnated in October, while a report by ADP Research Institute will show companies expanded payrolls at a slower pace in November. The Institute for Supply Management Inc.’s non-manufacturing index may show an expansion in services industries eased in November, according to a survey.

The Australia GDP report showed the terms of trade, a measure of export prices relative to import prices, fell 4 percent last quarter from the prior three months, and 13.7 percent from a year earlier.

‘Impressive’ Growth

“The solid growth the Australian economy achieved in the quarter is impressive given significant global weakness and one of the sharpest falls in global prices for non-rural commodities since the global financial crisis,” Treasurer Wayne Swan said in a statement after the release.

Resource investment to meet Chinese demand and foreign investment funds seeking a haven have spurred gains in the currency. The Aussie has averaged about $1.03 in the past two years, compared with about 73 U.S. cents in the prior decade.

BHP, the world’s biggest miner, last quarter decided to delay approval of an estimated $33 billion expansion of the Olympic Dam copper, uranium and gold mine. Fortescue Metals Group Ltd., Australia’s biggest iron ore producer after Rio Tinto Group and BHP, said during the period that it’s cutting capital spending and jobs.

Also weighing on growth is fiscal tightening. Prime Minister Julia Gillard’s government aims for a A$44 billion ($46 billion) swing back to a budget surplus before an election due late next year.

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