Second quarter growth data will likely paint a grim picture of Australia's economy on Wednesday as it reels under slowing exports and consumption.
Gross domestic product (GDP) growth decelerated to 0.4 percent on quarter, according to a Reuters poll, following a 1.1 percent expansion in the first quarter.
"A slowdown in exports after the first quarter's unsustainable surge is the main driver," Moody's Analytics wrote in a note. "Household consumption also slowed as consumers lost their nerve after the 'tough' federal budget."
In the three months to end-June, the seasonally-adjusted trade deficit was $4.8 billion, compared with an almost $3 billion surplus for the previous quarter, according to the Australian Bureau of Statistics (ABS).
However, some economists believe a soft GDP reading would merely be "smoke without fire."
"A soft or negative Q2 [reading] for GDP will create plenty of headlines. We wouldn't read too much into it though," said National Australia Bank. "[It would follow] a rapid Q1 – so probably best to read these two numbers together."
Furthermore, economic indicators point to stronger conditions in the September quarter, NAB said.
The Westpac/Melbourne Institute consumer sentiment index, for instance, rose 3.8 percent on-month to 98.5 in August as concerns about the tough federal budget unveiled in May - which featured tax increases and spending cuts aimed at erasing a deficit - eased. However, it remained below 100 indicating that pessimists outnumber optimists.
Meanwhile, approvals to build new homes – a reflection of strength in the housing sector - rose 2.5 percent in July, beating forecasts for a rise of 1.5 percent.
The soft patch in Australia's economy will be temporary, Shane Oliver, head of investment strategy and chief economist at AMP Capital said, citing an improvement in recent data.
"There is a high risk of a slight contraction in GDP. Inevitably, this would invite talk of a recession, but…a recession is unlikely," Oliver said.